Autonomy Capital lost 16% in Argentina market rout

Autonomy Capital lost 16% in Argentina market rout

Emerging markets hedge fund lost all its gains for the year, and then some

Autonomy Capital, a $6bn hedge fund specialising in emerging markets, has emerged as one of the biggest losers from the rout of Argentina's financial markets after the setback to President Mauricio Macri’s re-election prospects — but the fund’s founder said the price plunge is a buying opportunity.

The New York-based fund, led by founder and chief investment officer Robert Gibbins, declined 16.3 per cent in the first two weeks of August, according to a source familiar with the firm.

The decline, triggered by a primary election result on August 11 which suggested Peronist candidate Alberto Fernández is favourite to win October’s presidential poll, more than wiped out Autonomy’s gains from earlier this year.

Mr Gibbins told investors that the sell-off “presents an opportunity”. In a call with investors, he said that “Argentina is in the beginning of a normalisation process” and that “Alberto Fernández will not be a puppet” of Cristina Fernández de Kirchner, the populist former president who is Mr Fernández’s running mate.

Autonomy was up 17 per cent in 2018, making it one of the top performing hedge funds while most other managers struggled with market volatility.

Mr Gibbins said investors had overreacted to the primary election and said the starting point for Argentina now is different to where it was almost two decades ago, when it defaulted on almost $100bn worth of debt. Mr Fernández has been blamed for exacerbating Argentina’s financial pariah status, given her strained relations with international investors and penchant for interventionist economic policies during her presidency from 2007 to 2015.

Mr Gibbins has long been bullish on Argentina’s prospects, despite concerns that its bond and stock markets were at risk of being overvalued. In a letter to investors last October, he said a $57bn IMF bailout and efforts by the Macri government to turn the country’s fortunes around laid the foundation for “Argentina to rise like a phoenix from the ashes”.

The primary election result caused the peso to lose more than a fifth of its value against the US dollar. The country’s Merval stock index fell 48 per cent in dollar terms in a single day, the second-largest one-day drop in any of the 94 markets tracked by Bloomberg since 1950.

Investors also deserted Argentina’s dollar-denominated debt. The once-vaunted century bond, which matures in 2117, traded as low as 45 cents on the dollar — a level investors say is in line with potential recovery values in the event of a default.

Some of Autonomy’s peers and other investment managers were also wrongfooted by the change in sentiment. Funds run by Franklin Templeton’s famed bond fund manager Michael Hasenstab lost $1.8bn in a single day.

According to a JPMorgan survey, investors reduced their positions in the South American country more than any other emerging market in August — although “overweight Argentina” still remains one of the most crowded trades.

With four-fifths of its debt denominated in foreign currencies, the peso’s slide has dramatically increased the country’s debt burden, which some estimates have nearing 100 per cent of GDP by year-end. Investors are currently pricing in an almost 90 per cent chance of a debt default within five years, according to the credit default swap market.

Mr Gibbins said he did not agree. “Markets have wrongfully priced default even on external debt, which I think is not likely at all,” he said.

Ortenca Aliaj in London and Colby Smith in New York

Additional reporting by Lindsay Fortado in New York

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