The S&P Merval has an improvement of 17% to date[1] measured in dollars, it rises to 96% in domestic currency. When we disaggregate the index into its different components, the improvements in pesos are led by Transportadora Gas del Sur (TGSU2), YPF (YPFD) Y Comercial del Plata (COME) with increases of 243%, 238% and 180% respectively.
Seen in this way, shares were one of the only financial assets that could protect savings from intense and rising inflation. From now on, one never has to forget the risk you are exposing yourself to when making this type of investment, especially in a country as macroeconomically unstable as ours.
Beyond the anecdotal of the numbers for this 2022, when we temporarily expand the analysis, the situation does not look so comfortable for domestic paper: since the maximum in February 2018, the S&P Merval accumulates a red of 72% in hard currency. In the same span, the S&P 500 rose 36% and the Nasdaq 51%.
dollar and bonds, looking forward
On the eve of the end of the year and the beginning of an electoral one, as 2023 will be, the same question as always begins to resonate in the mind of the investor: is it time to expose themselves to the electoral trade? Is it sooner or later to do it?
Definitely no one can give a concrete and certain answer, so we must put on the table what we really have a conviction and seems more eloquent. In this sense, there are four aspects that we can identify to determine whether or not to have Argentine assets in the portfolio during an election year.
- The History shows that low levels of dollar stocks and bonds, coupled with the expectation of a more pro-market change of government, is an appropriate combination to expect positive returns. The specific case that we fear most close at hand is that of 2015, where the bullish rally in assets was significant. Do past returns guarantee future returns? No, but it is good evidence that something good could be ahead for the investor.
- The Market anticipates events. This is always true, and the question we must answer here is whether the good relative performance of the S&P Merval this year is all it had to give the electoral trade. Our view is probably NOT, that is, the market did not exhaust all the rise that was ahead. That said, it is very different from thinking that the path forward, more precisely until the date of the general elections, will be upward and free of volatility and risk. We expect movements without a defined trend until the issue of electoral candidacies is cleared up, with an eye also on how the main economic challenges are handled (debt rollover in pesos and the situation of the exchange market). Once this has passed, the trend should be bullish due to the expectation of change.
- The fiscal deficit is a key variable to solve for. If we think about this, the fastest way to balance the accounts is to speed up the adjustment of rates in subsidized public services. There, the shares of the sector have an advantage, despite the fact that some of them have already experienced improvements of more than 100% in pesos this year (such as the case of Transener, Transportadora Gas del Norte or Edenor, to name a few).
- Finally, it is urgent to resolve the imbalance in the exchange market. The keys go through increase the supply of dollars through exports. And in this there is awareness of the entire political leadership about an eventual key to unlock the imbalance: Dead cow. Papers like Pampa Energía, TGS or Vista itself may look interesting, despite the glimpsed increases.
And the bonuses? At this time, as investors, we prefer to be partners with the private sector rather than with the public sector in order to capitalize on an eventual electoral trade and a hypothetical beginning of management and solution of the large (and challenging) macro imbalances.
In conclusion, the electoral trade seems not to have been exhausted despite the good performance of 2022. What one must be sure of is that it is necessary to be willing to tolerate a very high level of risk in order to take advantage of the current Market situation.
[1] Closing on December 6, 2022
Head of Research and Strategy at Inviu.
Source: Ambito
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