Ashmore says it's buying Argentina debt even as market fears default
Argentina’s bonds and currency plummeted to record lows last month after left-leaning Peronist Fernandez defeated President Mauricio Macri in a primary election, prompting the market-friendly leader to unveil plans to delay debt payments and impose currency controls.
Ashmore was one of several foreign fund managers holding Argentina debt heading into the market meltdown and had 10.5% of its $1.4 billion short-duration emerging-markets fund invested in Argentina at the end of June, according to the latest Morningstar data.
It still has exposure to both international and local bonds, said Jan Dehn, head of research at Ashmore.
“Yes, the fundamental outlook is worse as there’s more uncertainty about what Fernandez will do when he becomes president, but the bonds are now pricing in an extreme version of what Fernandez may do,” he said.
“My view is that we will see a more moderate Peronist party emerge under Fernandez than what the market is currently pricing in, that’s why there’s value in the (international) bonds.”
Ashmore’s buying activity contrasts with some other fund managers who have been seeking to pare back exposure.
“We have been reducing risk all year in Argentina and have no active risk in local currency and zero underweight in sovereign dollar bonds,” said Brett Diment, head of global emerging market debt at Aberdeen Standard Investments. “We think pretty big challenges remain in Argentina and some sort of a debt extension is inevitable. Whether we also get principal haircut or reduction coupons is probably too early to say.”
Ashmore’s Dehn thinks the Fernandez administration might take inspiration from the performance of the first two years of former President Néstor Kirchner’s government in the early 2000s. Then Argentina’s economy grew 8.8% in real GDP growth per year and Kirchner stuck with the government’s then IMF programme, he said.
Argentina is waiting for a key $5 billion tranche of its latest IMF programme.
Dehn is also buoyed by Fernandez’s choice of Guillermo Nielsen as economic adviser, even though some creditors are wary after his role as the country’s chief debt negotiator following a default in 2002.
“The fact that Nielsen is part of the economic team and talking for Fernandez suggests to me that Fernandez will pursue a more market-friendly line than currently expected,” he said.
(Reporting by Tom Arnold; Editing by Alex Richardson)