Is Argentina The New Darling Of Emerging Markets?
"I think Argentina is a keeper," says Vladimir Signorelli, founder of Bretton Woods Research, a macro investment research firm in Long Valley, NJ. "It'll be a multi-year recovery story." He likes Mirae Asset's Global X Argentina (ARGT) exchange-traded fund. Over the last six months, it's up 27.53%, beating all the BRICS plus two other large emerging markets -- Mexico and Indonesia.
If you're not afraid of owning the Argentinian peso, you can get about 25% yield in local bonds.
"President Macri is driving the deepest reforms in decades," says Jan Dehn, head of research at Ashmore in London. "The opposition is weak. Growth and market depth and breadth are improving. Argentina offers both yield and spread," he says, finalizing with: "We like it a lot."
That's two for two: one stock fan, one bond fan.
Macri is expected to put Argentina on the path to investment grade, which is good for both stocks and bonds. There are a couple of things working in Argentina's favor at the moment.
The Argentina story fits in with the broader macro narrative of a flat to weak dollar and the ubiquitous tag-along to that -- a strong commodities market.
Argentina has shale oil and gas now and is a big farm state with soy, corn, and beef some of its most important exports.
Companies there are getting some positive fiscal stimulus. The corporate tax rate is going to 25% from 35% over the next five years.
The central bank is setting the table for more dovishness this year, even though interest rates are crazy high, at 27.25%. Inflation is around 24%. Argentina needs to see the peso strengthen before its central bank can say it has inflation under control.
For investors looking for the next big thing, or a borderline distressed asset coming into its own, Argentina stands out. A pro-growth, pro-business presidency helps this country that --for much of the last 12 years -- has been one part Venezuela, one part the worst of Brazil.
There is also the contrarian view to tend with here.
Argentina is one of the most expensive countries in Latin America. Some of its best stocks, like Mercado Libre, have extreme valuations.
Although the official inflation rate under ex-president Cristina Kirchner was about as reliable as government numbers coming out of Caracas today, Argentina's inflation figures have barely moved in three years and are still some of the highest in the world. Certainly it is one of the worst inflation rates in Latin America, with Venezuela leading the way.
"Argentina was economically ruined after years of a populist (Kirchner) government whereas every state was dishing out subsidies and the creators of wealth were basically punished, treated unfairly by the establishment," says Horacio Andres, CEO of CTG, a natural gas company.
Macri reversed subsidies on transportation, energy, and broadband telecom. Some subsidies still remain, artificially impacting prices.
"I think the economy is recuperating in real terms, but you don't see it proportionally spread out among the population, especially those less well-off who are faced with high inflation causing an increase in everyday expenses," the Argentinian CEO says.
To some close watchers, Argentina today resembles that of President Carlos Menem's government of the 1990s. They are afraid history will repeat itself, with more boom and bust cycles.
"I've seen this before. It's like 1992 all over again. A combination of local and external issues makes me believe February 1 was another big top," says Fernando Pertini, a fund manager with Millenia Asset Management. "I might be wrong, but I am pretty convinced it's time to sell."