Argentina’s crisis receding, says bullish Hasenstab

Argentina’s crisis receding, says bullish Hasenstab

Investor blames peso mayhem on ‘massive speculative attack’ and local over-reaction

One of the biggest investors in Argentina said that the country’s financial crisis was receding, and blamed this summer’s market mayhem on a “massive speculative attack” and panicky locals.

Funds controlled by Michael Hasenstab, a prominent fund manager at Franklin Templeton, have invested about $4.6bn in Argentine debt, betting that the government led by Mauricio Macri will manage to reform one of Latin America’s perennial basket cases.

Those bets were hammered by Argentina’s worsening crisis this year, which halved the value of the country’s currency against the dollar, sent bond prices tumbling, pushed the government into a $50bn IMF programme and caused the deepest economic recession since 2008.

However, the IMF’s willingness to overhaul and possibly even increase the size of its record-breaking aid package, the government’s promise to tighten its belt and the central bank’s move to crank up interest rates to a painful 60 per cent have stabilised Argentina’s markets, which are beginning to recover.

“In a crisis you want to see orthodox policies, and that is what Argentina has pursued,” Mr Hasenstab said in an interview. “We’re seeing a pretty powerful snapback.” 

The Argentine currency has climbed from a record low of about 40 pesos per dollar to 37.22, the Merval stock market has bounced by 37 per cent from its late-August low, and Argentine bonds have recovered some of their losses, sending yields lower again after the summer spike.

Mr Hasenstab said that the severity of the sell-off was overdone, exacerbated by the broader emerging markets turmoil triggered by Turkey’s ham-fisted response to its own crisis, a domestic population scarred by the country’s many past crises — which sent them flocking to convert pesos into dollars — and foreign investors aggressively betting against and exaggerating Argentina’s vulnerabilities.

“There was a huge speculative attack launched on Argentina, and there was a lot of misinformation spread by people that were shorting the currency,” he said. “Speculative attacks in August, when no one is around, can quickly get legs. And they were vulnerable because it takes time to rebuild confidence domestically.”

All told, “it was a perfect little storm” for Argentina, said Mr Hasenstab, the chief investment officer of Franklin Templeton’s global macro team. 

The Macri government has pledged to eliminate its primary fiscal deficit next year — the gap between spending and income, before taking debt servicing into account — compared with a previous target of lowering the deficit to 1.3 per cent of gross domestic product. The fiscal deficit was 3.9 per cent in 2017, while the target for this year is 2.7 per cent.

Central bank data indicate that the rush by ordinary Argentines to convert their peso deposits into dollars has also been halted, relieving one of the main pressure points against the country’s currency.

The IMF is also expected to finalise a revised programme for Argentina soon, perhaps as early as this week, which will probably lead to a front-loading of money disbursements and possibly an increase in the size of the hefty programme.

Although many investors are sceptical that the deficit can be eliminated so quickly and worry that the austerity will topple Mr Macri in elections next year — and even some former IMF officials have criticised the programme as overly generous to Argentina — Mr Hasenstab argued that the fund should, and would, keep faith.

“I don’t know what else they could have done,” he said. “What Argentina has done has exemplified orthodox, sensible policies, which isn’t common in the world these days.”

 

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