The above, which seems like a purely numerical puzzle, leaves the strong first concept: Argentina does not arouse much interest in the investor.
Is this due to lack of catalysts or drivers during the last two years? Doesn’t seem to be the case. In fact, more than strong and important processes were verified during the last two years that could have been a turning point in confidence. Quickly, two of those events come to mind: the restructuring of the sovereign debt in September 2020 and the closing of the agreement with the IMF in the last days.
Neither of these two events served to motivate investors or accelerate trading volume in domestic assets. The strategy of stretching the negotiations in the agreements, not having pragmatism and betting on the wear and tear of the counterparty, implied a very important cost in terms of investor confidence.
To make matters worse, the structural problems that have been dragging on for years have deepened in recent months. The acceleration of inflation is a concern for the investment world. This scourge attacks listed companies and distorts the natural flow of business, conditioning an eventual upward trend in the market.
On the other hand, no progress was made towards an improvement in the availability of dollars. The exchange rate, far from becoming more flexible, was filled with more regulations, revealing the difficulty of the situation. The supply of dollars continues to be meager, forcing companies to forcefully refinance their debt (Negotiable Obligations). This also affects the outlook for sovereign bonds and the approval of imports necessary for growth. Thus, this cocktail of factors is a fundamental part of explaining the current prices of financial assets.
Thus, without attacking this comprehensively, the fate of the local market will be tied to a tailwind of capital coming to emerging markets. For short-term speculative purposes, Argentine assets may have their “moment of glory.” However, the movements will be tied to exogenous and ephemeral factors.
In short, without confidence and without a macroeconomic restructuring plan, the market is not enthusiastic. This, at least, is the base case for the investor seeking sustainable (and healthy) portfolio management over time.
Head of Research & Strategy at Inviu.
Source: Ambito
