Markets: a “sung” drop behind the rebirth of Argentine bonds and equities

The third would be the charm. Next Tuesday Morgan Stanley Capital International (MSCI), an entity that prepares general indices to categorize the different markets of the world, will reassess the rating of the local stock exchange, after the reviews it carried out months before and after the last presidential elections because of the turn that the country took from policies that allowed the free flow of capital to others that restricted it again.

Analysts expect that, after having maintained both in November 2019 and in February 2020 the “emerging” category which he had returned to in 2018, this time he formalize a “descent” What reposition it as a “frontier” market. Particularly because after the last reassessment, MSCI warned that its persistence as an emerging market depended on the relaxation or removal of currency controls, which at this stage not only persist but have intensified for eight months and half.

So, you will understand, the die is cast and the “third” will be the charm, as a popular saying goes. Paradoxically, they explain that it would be precisely the imminent “drop” that would have helped the market to rebound strongly in recent weeks for technical reasons.

Essentially because Argentina would go from a low weighting in the emerging markets index to a much higher one in the one corresponding to the “frontier markets”, which would also be reinforced by being one of the few in the region in this category .

This has led to large investment funds specializing in risky investments, launched in search of better returns in a world where low rates are usual due to hyperliquidity derived from the way different countries and economic zones have done. facing the exit from his last crises. , look at local assets to anticipate this change of category. This led to a rally in Argentine stocks and bonds that continues to this day.

“Remission that the reclassification will be a fact next week because Argentina has not improved in terms of capital controls and limitations for the remittance of dividends abroad, two fundamental aspects to be considered as emerging which are violated ” , explains the economist Gustavo Neffa, Director of Research for Traders and Fin Gurú.

“What you are reading about the increased demand centered on the main ADRs is that the market is ruling out recategorization,” he admits. Christian Réos, Head of Strategy at Allaria Ledesma. “We are witnessing a realignment of international portfolios essentially linked to what this change would imply, given that in the emerging index Argentina represents very little, but in the frontier index (even if it is a lower index) it would weigh a lot more, ”he explained.

As an “emerging”, Argentina is part of a club in which there are also much larger and stable economies such as China, India, South Korea, the United Arab Emirates and Poland, and which also includes Chile, Mexico, Brazil, Colombia and Peru among the countries of the region.

If MSCI decided to relocate it as a border market, it would be part of a membership that includes many countries in Africa (Nigeria, Tunisia, Kenya, etc.), Asia (Bahrain, Jordan, Oman, Vietnam, etc.) and Europe. .from the East (Serbia, Slovenia and Romania, among others).

In this border index, it is estimated that Argentina could aspire to a participation similar to that of Vietnam (31%) or slightly lower but higher than that of Morocco (8.7%), which it obliges investment funds which tend to replicate these weightings in their portfolios to add the “Argentinian risk”.

For the economist Mauro Mazza, strategist at Bull Market, there is no doubt that this reorganization of the portfolio was at the origin of the recovery of Argentinian assets. “Curiously, it was good news for the market ”, explained during a meeting with investors to analyze the strategies at the beginning of the month.

For Cohen analysts, the recovery in local assets was also helped by the widespread backflow of funds to emerging markets that has occurred in recent weeks. “Argentinian assets took advantage of this wave of enthusiasm and also operated on the rise: these funds pushed the whole region on the last wheels and, in the Argentinian case, they turned more to stocks than to bonds. sovereigns.

Due to the ripple effect of these movements, the Merval de Byma index succeeded in strengthening the rebound that began in mid-May and started in June, exceeding the 61,000 point mark. Today, it has reached 62,600 (it still increases by 2.4%) for the first time but, above all, it reaches its maximum of the year evaluated at 375 points evaluated at the exchange rate counted with a settlement of 167, $ 28, after completing 2020 at 365.

And the country risk rate today broke 1,500 points, marking a drop of 1.7% which leaves it in 1476 on the day, its lowest level since mid-February.

Conocé The Trust Project