Is It Finally Time To Buy Argentine Stocks And Bonds, With The Country Stuck Between Heaven And Hell?

It is becoming increasingly difficult to read through the thick layer of uncertainty that hangs over Argentina’s socio-political ecosystem. More so than usual, in great part due to the combined effects of a tumultuous electoral process and pervasive economic stagflation that is extremely palpable to the population given triple-digit inflation. At the same time, Argentine stocks have gone on an incredible rally that promises to continue, dragging along rising valuations in the beleaguered sovereign bond sector as a shift in investor sentiment points to change in the political class’ relationship with the market. This isn’t a new trend as the collective group of economic agents we call “the market” has made very clear in the recent historical period, showing huge pessimism the greater the power of Cristina Fernández de Kirchner and massive optimism when it sees the “market-friendlies” making a comeback. Yet, the situation in the streets promises to be challenging, as recent events in the northern province of Jujuy have indicated, foreshadowing a complex scenario in the months and years ahead, especially if a reform-minded government makes it to the Casa Rosada and sticks to its promises.

In the multiverse that is Argentina, it is the best of times and it is the worst of times, to paraphrase Dickens. From a financial standpoint, Argentina is back in the game. While for years it was considered a global financial pariah, and to a certain extent it still is, investors have sensed opportunity in a country with interesting prospects and massively undervalued assets. Businessmen and investors with international exposure are sensing that what was generally a conversation killer has now become a point of interest. “What can we buy?” they’re asked. Their bullish sentiment can be reflected in the value of Argentine stocks taken in US dollar terms, with the Merval index having gained nearly 40 percent thus far in 2023 despite clear signs that the economy is running out of steam given the chronic lack of foreign reserves. Sovereign bonds are also looking attractive to the point where financial powerhouse Morgan Stanley
MS
has recommended Argentina’s “junk bonds,” along with those from Ghana, Ukraine, Zambia, and El Salvador.