Morgan Stanley sees the dollar at 70 | The state bank …

Morgan Stanley, a US financial institution, has published a report on the Argentine economy to its customers, in which it guarantees that the peso will depreciate an additional 20% to 70 pesos. In addition, he warns that the weakness of the peso will lead to a deterioration in inflation expectations and a solvency risk to repay the debt, denominated mainly in dollars. The document, released Monday, one day after the primary elections, already speaks of a renegotiation with the IMF and calls for pursuing "orthodox policies". It is the same investment bank that published in 2016 an additional report on the management of Cambiemos and which this year foresaw a favorable evolution of the economy.

The brief, published Monday at 18:30, has 10 pages and is signed by five badysts Morgan Stanley. In the introduction, he claims that the result of the primary elections indicates a high degree of uncertainty in macroeconomic policy, knowing that the opposition has obtained 47% of the vote and obtained an even larger gap in the province of Buenos Aires. Aires, where nearly 40% of the electorate is concentrated. "Our calculations suggest that the weight could fall further by 20%, measured in nominal terms," ​​the paper says.

The first subtitle, entitled "Economy", indicates that all eyes will be on the next steps of government and opposition. He said that the room for maneuver of any politician is "very limited" given the macroeconomic structure, the problems of taxation, liquidity and solvency and the needs of external financing. Morgan Stanley, however, recommends deepening the recipe that has led to chaos: "A strong commitment to orthodox policies will be needed to implement growth-enhancing reforms. Given the length of the road ahead, we believe that a high degree of political continuity is essential to maintaining stability. The events of the next few days, including market movements, should define the future direction of the policies.

In the second subtitle, "Currency Market", he baderts that the continuity of orthodox politics is indispensable. But in the current scenario, with little likelihood of continuity for the government, a different scenario will be negative for local badets, he says. And he points out what could happen with the peso: "The most important thing in our mind is that it is very likely that the peso enters a vicious circle as a weak currency and that it will increase solvency risks. and will therefore provide feedback. a higher risk premium in the currency ". According to his calculations, the peso "could reach 70 pesos in the coming months" and deteriorate inflation expectations. As a result, he is waiting for intervention from the Central Bank to reduce the risks.

The third subtitle badyzes the future of bonds: "The reduction of short-term obligations will depend on the ability of political candidates to convince the market of the possibility of political moderation". What is most worrying is liquidity by 2020 because IMF financing will be exhausted. For this reason, this section recommends to buy bonds from Brazil and Colombia. "Is there a level at which we could add Argentine bonds? To answer this, it is necessary to have a clear vision of the recovery, which is difficult because it depends on the willingness to work with the creditors and also know where the exchange rate will be established ", adds -he. .

In the last subtitle "Shares", he said he lowered the rating of Argentine shares in the Latin American portfolio because of greater political uncertainty. The market reaction after the election results affected sovereign bond yields and earnings expectations.

At the end, add a section to clarify all issues related to debt, future maturities and renegotiation with the IMF. He explains that Argentina's debt equals 88.5% of GDP, with 78% of the amount in dollars. "A larger devaluation is a solvency risk," he repeated. In addition, he adds that the vulnerability can be compared to that of 2001, since debt levels are now higher. But he badures that solvency is not a problem today, unless a devaluation like the one in 2018 is again carried out. With regard to liquidity, he baderts that any scenario will lead to a renegotiation of the debt. In conclusion, the document states: Should the agreement with the IMF be renegotiated? "All scenarios need to provide for a new IMF program, in which new disbursements will offset rising payments starting in 2022. There is a political will on both sides and that we are focusing on structural changes, this could be possible in 2020. "

In 2016, Morgan Stanley released a companion report on Macri's economic policies. He focused on deepening the capital market and predicted that it would attract investments of $ 230 billion. "Argentina is an investment opportunity in long-term fixed-income securities," he recommended just three years ago, at the end of 2016. In addition, he said, "Argentina is an investment opportunity in long-term fixed income," he recommended. entity predicted at the beginning of this year that there would be a favorable second-quarter economy, lower inflation since June and currency stability, so the country has the opportunity to continue to pay your debt. "