The context of Argentine equity
Since the assumption of Javier Mileihe S&P Merval in dollars exhibited an outstanding performance, registering an increase of approximately 24.5% measured in dollars at Cash With Settlement (CCL). Although it is still far from its historical highs (US$1,800 area in Feb-18, approximately US$2,200 adjusted for inflation).
That’s why, since Inviu They raise the question of what is better, whether to go towards the fixed income or variable income. When evaluating the risk-return relationship in comparison with country risk, an above-average level of equity in dollars is observed. “If the historical correlation is respected going forward, There is a possibility that the Country Risk and/or the Merval will adjust downwards“, they say from the broker’s Research area.
The brokerage firm’s perspective is that there is a possibility of a downward correction for both the BYMA stock index and the country risk in the short term (a good one for bonds), seeing greater probability in the latter. “Although in bullish market environments, investment flow can dominate the trend, sometimes ignoring fundamental logic,” he warns.
Regarding the local stock market, he adds that the projection is that the S&P Merval will continue to experience volatility in the coming months. because eyes will be on the strength of economic recovery.
The impetus of the Bases law and the May Pact
For Inviu, in a context where the Bases law with modifications, with a May Pact without much significance and a partial fiscal balance without any significant improvement in the quality of the adjustment, as well as with a not so pronounced economic rebound, A country risk of approximately 1,000 basis points could be projectedand this “allows for a certain appreciation of the bonds, although limited due to the moderate improvement in risk perception and the economic environment”.
For Gustavo Neffapartner of Research for Traderswith the Bases law already approved, the exchange rate should converge to more stable values for give the Government some peace of mind in the short term. This, adds the strategist, should be accompanied by an increase in the recovery of reserves that slowed down in June, as mentioned in the first lines of this note.
However, Neffa warns that, although agriculture is liquidating, “Months of lower net accumulation (reserves) are coming due to commitments to be paid in dollars, but all this in a context of greater optimism, because the Government is going to have its first laws approved and that will give it certain legitimacy and political consensus. Good signals for the market.
The strategy behind the law Bases on fixed income
According to the latest report from the consulting firm 1816, the linked dollar bond TZVD5maturing in December 2025 and placed on auction yesterday with an Annual Equilibrium Rate (TEA) of -8.79%, presents certain challenges in terms of valuation.
In the most favorable scenario, assuming that there will be a devaluation and that the exchange rate restrictions will be eliminated in the second half of 2024, the exchange rate set by Communication “A” 3500 would have to be considerably high for this bond to be competitive with a Lecap.
In comparison, synthetics dollar linked The synthetic bonds built with CER or Lecap 2025 bonds and futures are more attractive. For example, at the close of Wednesday, a combination of Lecap Mar-25 with Mar-25 futures offered an EAR of DL+0.6%. However, these synthetic bonds face the problem of low depth in long-term futures.
At Rofex, the open interest of all contracts expiring in 2025 barely exceeded $100 million. If this restriction is not significant, it is possible to seek greater performance by arming the synthetics with CER.which provides an additional rate if inflation for the remainder of 2024 exceeds the 4.3% monthly average that equals the TEA of the T2X5 with that of the Lecap January.
Dollar and investments
These strategies do not necessarily require a devaluation in 2024 to bear fruit in the short term; “It is enough for the market to seek coverage via linked dollar, as it usually does in the second semesters,” adds 1816.
For portfolios without exchange rate restrictions, The consultancy maintains a positive view regarding global bondsconsidering that, despite the impact of fiscal adjustment and relative prices on economic activity, citizens continue to support a pro-market government that is very committed to a fiscal surplus.
Curve of sovereigns 1816.png
1816- Clean offshore price of global sovereign bonds.
In this sense, the consultancy prioritizes the long stretch of the curvewhich, due to its lower parities, offers greater coverage than the global GD30 and GD29 in case Argentina returns to “distress” territory, “while still having greater upward potential if the sovereign yield curve normalizes” .
At current prices, the attractiveness of Global 2041 (GD41) over 2035 (GD35) stands out, due to its lower parity and better contract. “Although the GD35 has more flow in the coming years, the GD41 offers greater contractual securitysomething to consider in the event of a scenario of normalization of access to international credit by the sovereign,” they say.
On national equity
From Inviu the recommendation is to be selective in the papers that are chosen to invest, as this can make a difference. “This is the main recommendation we can make,” adds the broker, who warns that “we are not discouraging the purchase of ‘equity’ so much as the coverage of all sectors.”
Among the sectors with the greatest potential identified by Inviu, the oil sector stands out, where YPF and Vista are positioned as the main playersand energy, with companies such as Transportadora de Gas del Sur, Pampa Energía and Central Puertowhich offer interesting prospects for investors looking to diversify their portfolios.
“In particular, we see that some of the companies we mention are lagging behind the rest of their peers even within the local market, as is the case of YPF.“, they conclude.
Along the same lines, it is expressed Neffa, who focuses on the roles of financial entities such as Banco Macro, but also on “utilities”, through Transportadora de Gas del Sur, with a “more than interesting” expansion project. He also recommends not falling off the radar View which should sooner or later recover the maximums it was able to reach based on good production figures and a rising oil price.
