Where to invest in Cristina's Argentina?

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After presidential elections, investment banks have started to make recommendations. They bet on Argentine bonds, though just on short-term ones. There are instruments, like BONAR, yielding 10 per cent in dollars. With 12-month NOBAC (Argentine Central Bank's Securities), the rate climbs to 18 per cent in pesos. This is not a bad option, if trusting that dollar will keep on being held at around ARG$3.20. There are doubts about investments extending for more than a year. Reason why recommendations only focus on those denominated in dollars. This is not the best moment for more-than-one-year investments in indexed bonds, because Argentine Statistics and Census Institute (INDEC) may start measuring price variation seriously in Cristina Fernández de Kirchner's administration. Last night, the president-elect defended official measurement again and even the auditor Beatriz Paglieri, appointed by Internal Trade Secretary Guillermo Moreno. It will all depend on official commitment to get public finances back on the rails. The piece of information to follow closely as far as economy is concerned is fiscal saving, which is reported every month. If tax collection starts growing faster than spending, country-risk decline will be boosted, nowadays closer to Ecuador's than to Brazil's.

With the political scene already defined after last Sunday's presidential elections, great banks in Wall Street and investment funds have started to recommend some investments in Argentine assets, always with great caution. Short-term bonds, both in pesos and in dollars, GDP coupon in foreign currency and stocks are among the favourite alternatives of the menu.

As regards coupons, some entities have told their clients that the great leap last year happened in November. Month prior to the annual payment Argentina makes on growth excess. The "GDP unit" quotes in foreign lands at less than $14, but it's believed that the exact value would be closer to $17.

As this newspaper anticipated last week, inflow of dollars from Retirement and Pension Funds Administrative Bureaus (AFJP, in its Spanish acronym) started to be felt in stock market. Government has ordered them to repatriate $600 millions till the end of the year. A substantial portion would end in leading stocks, which show a marked backwardness with respect to other alternatives in Latin America.

Bonds

As regards bond market, an European bank revealed a report detailing which would be the most appealing options. It concludes that it is in the short tranches where the best possibilities would be, given the high yield against a relatively fenced risk. These are the main passages of the report:

It's a good moment to place in NOBAC in pesos adjustable by interest rate and, at the same time, to cover oneself by buying dollars in the future. Nowadays, these instruments issued by Argentine Central Bank (BCRA, in its Spanish acronym) yield between 16 per cent and 18 per cent annual in domestic currency. Credit risk is low (i.e. a BCRA default is impossible) and BADLAR rate (the one determining NOBAC indexation) shows a good approximation to real inflation.

As regards CER-adjusted bonds, they offer high yields. All the same, short-term instruments are better due to inflation acceleration risk. Long-term bonds are more sensitive to these data and may be lashed.

In dollar curve, preference also focuses on short bonds, like BONAR V and BONAR VII, with respect to Discount. "Current values suggest market is exaggerating the risk of being positioned in bonds issued under Argentine law," it states. They yield 10 per cent in dollars, more than doubling a US Treasury bond with the same duration, particularly taking into account low rate scene in developed markets.

In the short term, it concludes, peso-denominated debt will have a better performance than the one issued in dollars. But, for longer terms, we prefer debt denominated in foreign currency, since official reports will keep on underestimating inflation, which will hit peso-denominated bonds.

According to Wall Street banks, Cristina de Kirchner's victory in the first round does not dispel doubts about Argentine economy, which were already present before elections. In different reports disclosed yesterday morning, writers wonder whether "gradualism" to implement changes will be enough to handle economic policy.

"The first speech of Cristina did not contribute anything new to the most serious issues," a Lehman Brothers' report signalled. Signed by the economist in chief for Latin America, Guillermo Mondino, the entity advised investors to "rule out" the possibility of a turn in Argentine administration, as it happened with Lula Da Silva in Brazil in 2003. "She would try to make marginal adjustments," it adds and forecasts that "the first round of talks about salaries or transfers to provinces may prove difficult."

For its part, Eurasia Group adds that the president-elect will "keep current economic policy," though she will make "gradual adjustments to curb inflation." However, at the same time, it stresses that "since the scene is more complex now, the ability to implement these variations has reduced significantly."

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