The current economic context is given by a government that sought to give signals, in its first months in office, that it will try to address the multiple inherited imbalances, with an extremely challenging initial situation.
The government identified, in our opinion correctly, the fiscal plane as the root of the rest of the macro imbalances, and dedicated itself to giving signals in that sense, announcing a commitment to zero fiscal and financial deficit.
Thus, he faced a fiscal adjustment which, in the 1st two-month period, implied a surplus of 0.15pp of our estimated GDP, explained by a primary surplus of 0.5pp of GDP. However, a deeper look at the public accounts raises the question of whether this can be sustained over time. The sharp drop in real spending was mainly due to the liquefaction of items such as pensions and salaries, the cut in public works and transfers to the provinces, and the increase in floating debt.
Meanwhile, in relation to the income, the real increase in January was leveraged by those taxes favored by the December devaluation, which in February were not enough to compensate for the sharp drop in those linked to activity. In a context of economic contraction, the fall in taxes linked to activity and employment will be another focus that the government must pay attention to when consolidating public accounts.
We believe that a fiscal consolidation It will necessarily require progress in reducing subsidies, although the consequence of this is to boost inflation in a context of regulated prices that are highly behind core inflation. The government has already delayed some increases, we believe with the intention of avoiding higher inflationary figures in March, a seasonally unfavorable month, and to try to anchor expectations going forward.
With respect to inflation, it must be said that the slowdown compared to the December peaks was due both to these postponements in regulated increases and to the strong economic contraction and continued decline in real income. Going forward, the different one-offs in regulated areas would have their impact distributed in the months after the increases were implemented.
Moving on to monetary-exchange plane, the government faced this first stage with the liquefaction of real stocks of pesos, lowering the reference rates and maintaining the strict exchange controls of the previous administration. This, together with the devaluation to overshooting levelsthe settlement scheme 80% to the MULC-20% to the CCL and the staggered scheme of access to the MULC for importers allowed both to buy almost USD11.4bn in the management and to keep the dollar free in a certain calm.
Investment recommendations according to investor profiles
In this context, it is worth thinking about investment strategies for different investor profiles. For conservatives, we believe that the current level of the free dollar in real terms can be attractive to dollarize portfolios. Meanwhile, for some somewhat more risky ones who bet on the continuity of the exchange rate calm, the carry trade making a rate in pesos can be attractive, although we highlight that this type of positions can erase losses very quickly in the face of sudden upward movements in the exchange rate. .
Turning to risk assets, we maintain that sovereign bonds in dollars (Global) offer the most attractive risk-return ratio on the market. In an environment of normalization towards returns from emerging countries, one-year returns in dollars are more than interesting. Whoever bets on a compression to, for example, the levels of Ecuador, might prefer GD30 while those who bet on even greater compression, at the levels of South Africa, Egypt, Nigeria or Angola, could see value in GD35.
For defensive positions in Globals, we like GD41. Meanwhile, in relation to equities, we are constructive in the energy sector and we like YPF, PAM, VIST, TGS, TGN and CEPU.
Having said all this, we believe that the political-social level will play a fundamental role in terms of the administration that the government manages to carry out of the political costs that the proposed adjustment will imply. So far, confidence indicators remain at high levels, but it is no less true that the adjustment is just beginning and that regulated prices still have a long way to go to move towards a more normalized environment of relative prices.
We maintain the view that the “delivery” that the government will provide in these months in relation to the macro order will be key to unlocking value in risk assets. The risk perception and aversion of each investor will be key to determining the choice of market positions undertaken.
Chief Economist of SBS Group.
Source: Ambito
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