Uncertainty in Mexico is good for Argentina
With uncertainty heightening in Mexico pursuant to Donald Trump becoming President in the US; vowing to bring jobs back from Mexico to the US, while building a wall between the two countries; we may see this other Latin American (ILF) nation, Argentina, rising to investor favor.
Argentinean equity has been outperforming
Over the last 6 months, the iShares MSCI Mexico ETF (EWW) has slid 14%, while the Global X MSCI Argentina ETF (ARGT) is up 17%, outperforming the iShares MSCI Emerging Markets ETF (EEM) and the Guggenheim Frontier Markets Equity ETF’s (FRN) performance which stood at +1.89% and +8.67%, respectively, over the last 6 months (as of February 14).
Stocks of companies such Agrometal SA, Petrolera del Conosur SA, Petroleo Brasileiro SA, and Holcim Argentina SA, are up over 200% in the past 1 year (as of February 14).
|Ticker||Name||Weight||Shares||Price||P/E||1 Year Total Return – Current|
|AGRO AR Equity||Agrometal SA||1.971||12.32||31.20||51.8||365.6717|
|PSUR AR Equity||Petrolera del Conosur SA||1.369||34.90||7.65||—||363.6364|
|APBR AR Equity||Petroleo Brasileiro SA||11.809||27.77||82.95||—||252.9787|
|JMIN AR Equity||Holcim Argentina SA||3.457||18.08||37.30||126.5||201.7434|
The economy has already been undergoing market-friendly economic reforms under the aegis of President Mauricio Macri who took office in December 2015. The IMF forecasts that the economy would grow at 2.7% in 2017.
Macri has been instrumental
Mauricio Macri has been instrumental in dismantling capital and currency controls in Argentina. For instance, on January 5th this year, the government removed a rule requiring financial portfolio investments to remain in the country for at least 120 days. Markets consider the move to be a huge catalyst in Argentina’s attempt to be reclassified into the emerging market category this June. Moreover, Argentina now has regained its access to the international debt (IGOV) markets. The country raised about $19 billion from the international debt market in 2016 and is looking to raise an additional $10 billion in 2017.
Increased lending could be the growth potion for Argentina
Lack of lending remains a growth anchor in Argentina. At a mere 12% of GDP, private lending seems little when compared to an average of 51.6% in Latin America (ILF), and an 89.6% in the emerging markets (EEM) (VWO), as per IMF data.
So, if credit growth picks up in Argentina, it could really serve as one of the pillars supporting the economy’s aspiration for a reclassification. HSBC expects lending to triple in Argentina by 2020. Banks, such as the Banco Macro SA (BMA), BBVA Banco Frances (BFR), and Grupo Financiero Galicia (GGAL) should gain with the rise in lending activity. BMA is already up 35%, BFR has gained over 9%, and GGAL has returned over 30% for the year so far (as of February 14).