This measure arose given that devaluation expectations affect the behavior of market agents, advancing the payment of imports and delaying exports.
The sources of financing are scarce: the local market and the assistance of the Central Bank. Therefore, the government tries to make tenders more attractive, generating more genuine demand.
At this point, next week the tenders for the bills of less than 30 days for the FCI (Common Investment Funds) begin. This maneuver tries to capture the demand of the FCIs for financial assets that are very conservative but that offer attractive rates.
Regarding the investment decisions of the funds, these letters would be competing with a remunerated account, which yields approximately 32%, and a fixed term, which yields 34%.
The level of participation of the funds will depend on the performance of the letters.
Within our family of funds, to Conservative investors looking for high rates with low volatility, we recommend the FCI AdCap Pesos Plus, which has a duration of 3 months and yields an annualized rate of 42%, thanks to the diversification of the portfolio between CER instruments, Badlar and corporate and sovereign bonds.
On the other hand, inflation will continue to be high, although controlled at around 3.0% per month. The August number, 2.5%, was the lowest of the year.
In the balance of risks, inflation could surprise to the upside, especially in response to the expansionary fiscal and monetary policy implemented by the government ahead of the November elections and adding to the eventual devaluation.
So things, the demand for inflation hedging is here to stay, not only because inflation expectations continue to rise, but also because they serve as an imperfect hedge of the devaluation.
To be hedged against inflation risks earlier, the FCI AdCap Balanced II is our favorite fund. It lasts less than 1 year and yields CER + 4.0%. The Balanced II is composed mostly of very liquid sovereign bonds, ranging from the shortest Lecer to the Boncer TX24.
We keep the duration short so that it can capture the inflationary scenario that we see ahead, without adding too much volatility and being an investment according to an investor with a more moderate profile.
The dynamics between financing needs, deficits and reserves leads us to think that devaluation is inevitable. The issue is when and how it will be, if with a discrete jump in the exchange rate, or through an increase in the devaluation rate at a rate closer to inflation.
With regard to timing, it seems that the adjustment would be after the November elections, perhaps within the first quarter of next year. In any case, we cannot only think of an exchange rate adjustment, if not an economic plan that brings confidence so that the country can resume the growth path.
For investors who have pesos and need to hedge against a possible devaluation, there are all the products that offer exchange rate hedging.
In our family of funds, the AdCap Total Return is the hedge fund for devaluation, with a duration of 1.24 years and yielding devaluation + 0.34%. It should be noted that the investor profile should be moderate / aggressive, given the volatility of this asset class.
In sum, faced with a scenario in which a devaluation appears inevitable and with the risk of rising inflation, the Argentine investor has opportunities to position themselves and protect your savings, always according to your own investor profile.
Head portfolio manager de AdCap Asset Management
