lunes, 30 de noviembre de 2015
The confirmation of a three-year stock market speculation
Last Sunday, the people of Argentina cast their votes and Mr. Mauricio Macri was elected president. He is the leader of the opposition party “Cambiemos” (Let´s Change) and he has defeated Cristina Fernandez de Kirchner, who has ruled the country for 12 years (since 2003).
This election shows a clear tiredness of the society: The Argentine people have voted for the opposition in the major cities such as Buenos Aires, Cordoba, Santa F and Mendoza.
The Buenos Aires Stock Exchange has been in a bull market since 2013 when the Kirchnersim lost the middle term election. That election was important because the rulling party, lost chairs in Parliament which meant that they would not get the number of votes for the amendment to the Constitution that would have made the candidature of President Cristina Kirchner for a third term possible.
Since then, the Merval Index has shown an increase in its value from 2100 points back to the actual values at 14.000 points in local currency and from 300 dollars to 1000 dollars in the same period.
The speculation behind this bull-market has been showing a need of change in the present administration, the need to show an improvement in the relationship with other countries and with the financial world. There is also the need to implement policies which will allow the eradication of poverty, to have control over inflation and develop policies to control the actual unbalanced exchange market.
So last Sunday that speculation finally became a reality with “Cambiemos” winning the presidential election run-off, and Mauricio Macri being sworn in next 10th December.
He will have to act quickly and address very problematic issues such as economic ones, social differences between both parties, poverty, problems with the Holdouts, drug trafficking and insecurity which causes many deaths in highly populated urban centers all over the country.
So there is plenty of work to be done and everything will be different from the last 12 years of Kirchnerism. The big question today is what´s going to happen in the stock market? Will investors keep on trading with the famous statement: “buy the rumor, sell the fact”?
Are the actual values of the Merval Index a good representation of the Argentinean economy? After such rally, isn´t Argentina expensive in comparison with Brazilian stocks?
Without making a short term comparison between Argentina and Brazil or another similar Emerging market, we think that the Argentinean stocks have a lot of potential and still is and will be good for middle and long term investment in the coming years.
In terms of dollars, the Merval Index and the Bovespa are both placed within the maximums of the 1990´s. In 2012 the Merval index started a bull market while the Brazilian Bovespa Index started a bear market, so both today are in the same position in terms of dollars.
International investors have shown their interest in investing in Argentina if someone more rational ruled the country. For these investors, most of which are Hedge Funds and International Banks, the local stocks are still a bargain in a long term investment.
In the fixed income market, many of the Argentinean bonds have an 8% annual yield, and in a world with 0% rates (and many in a negative interest rate annual yield) local bonds represent a very good buying opportunity, even more after the result of this election
There still exists a lack of arbitrage between Argentina and Brazil in terms of yields. The carry from 8% to a 5% yield, will probably push bond prices even higher.
This is a new era for Argentina and the change has just started, so this country will be back in the first scene of the emerging market economic and political participation. The market has been speculating with this reality and it probably has been pricing good changes that will surely be seen t in the coming months. We will have to wait and see.