For investors: how the race between the dollar, the rate and inflation will continue

The Argentine economic context has plunged into what is usually called the “nominal race”. Rising inflation data have fed back inflationary expectations and locked the Central Bank in the dilemma of what to do with the rate of devaluation of the exchange rate and with the interest rate.

Although the BCRA slowed down the rate of devaluation with the attempt to anchor expectations, has failed to convince the market to eliminate the probability of a discrete jump in the exchange rate. Therefore, exchange rate pressures remain.

At the same time, the BCRA also tries to use the interest rate as a tool to anchor expectations, but it is an inefficient instrument in an economy with such a low share of bank deposits in relation to GDP. Moreover, by increasing the rate, the growth of the remunerated liabilities of the BCRA (Leliqs and repos) is fed back, which further deteriorates its financial situation, given the context of scarcity of international reserves.

In the current context, the daily challenge is what to do with the weights, given that leaving them in sight means an erosion compared to the current levels of inflation and the opportunity cost of investing them. Luckily for the investor, there are more and more investment alternatives, which can be accessed more and more easily and at lower costs, such as our Fintech alternative.

In the nominality race described above, in recent weeks both CER and dollar-linked (DL) instruments have tended to have relatively even results and have beaten fixed-rate instruments. Looking ahead and in the proposed scenario, it would seem that both the CER and DL instruments would continue to outperform the fixed rate ones.

To invest in CER there is both the possibility of doing so through individual instruments and the letters that are tendered monthly (LECER) or through a fund. With respect to DL investments, the funds are very efficient instruments because they allow combining sovereign risk with corporate risk and, in addition, the investor can access synthetics indirectly.

For those who feel more at ease with dollarized instruments, the Bonares (AL family) are at very attractive values, given that their current price oscillates at what the market considers to be their “recovery value” (recovery value) in the event of a possible restructuring, an event to which we do not assign a significant probability.

For those who prefer to assume corporate risk instead of public, the market currently offers very interesting alternatives. In our case, through our corporate finance department we are constantly helping companies to finance them and at the same time offering excellent savings protection alternatives to investors.

In this sense, companies issue negotiable obligations (ONs) in pesos on a daily basis, either Badlar + margin or DL, as well as ONs in dollars that can be accessed through the MEP dollar.

Furthermore, for those who are not as comfortable with Argentine risk or want to combine Argentine risk with other risks, the universe of mutual funds includes LatAm Fundswhich are partially invested in US Treasury Bills and in debt instruments, both public and private, of countries in the region.

For those who are willing to move beyond fixed income alternatives and enter the world of shares, Argentina offers an interesting opportunity given that the valuations of the companies, even with the recovery of value that they have had in recent times, are found attractive in historical terms. For those more sophisticated investors, the local market has instruments that can be accessed with pesos and that invest in international shares and ETFs, I am referring to CEDEARs.

In short, the context is challenging, but the Argentine capital market offers various investment alternatives that are becoming easier to access, with lower costs and without leaving home.

President and Founder of IEB Group