Argentina’s markets soaring high

Argentina’s notoriously fragile stock and bond markets, which have been battered by years of economic downturns, are on the rise once more. The country’s S&P Merval stock index is up about 30% in dollar terms this year, making it one of the top-performing stock markets in the world, with the majority of those gains occurring since a low point in March-April. Sovereign bond prices, which had been stuck in a slump for years, have risen over the same time period.

The rapid rise has accelerated in recent weeks, fueled by favorable sounds around $45 billion debt talks with the International Monetary Fund Analysts believe the prognosis for investors in South America’s second-largest economy is improving as depleted foreign funds begin to replenish and COVID-19 cases continue to fall, allowing restrictions to be removed. Following a sovereign restructure last year, the crucial Buenos Aires province finalized a $7 billion debt restructuring last week.

“The post-restructuring payment outlook looks clear in years ahead, the economy is recovering, the central bank seems to have stabilized the exchange rate and slowly recover reserves,” said Sabrina Corujo at consultancy Portfolio Personal Inversiones.

“We are clearly not in the best of scenarios – or close to it – but we’re not under the shadow of default.”

The stock market reached a new high this week before taking a respite on Tuesday, and it is now up about 7% in the last week. With a market value of $26 billion, the Argentine stock market is dwarfed by its larger counterparts in Brazil and Mexico.

In the last seven trading sessions, the over-the-counter bond market has gained an average of 5.7 percent. Since March’s lows, the 2030 and 2038 bonds have gained 10% and 17%, respectively. Despite the country’s well-known dangers, there are nonetheless advantages. “Investors and trading volumes have increased, with abrupt increases in the short term. Argentine assets are still undervalued, but the risks are many,” said one banking analyst.

Argentina has tight capital restrictions in place that limit access to dollars, putting a damper on company foreign debt issuance, and the government has to resuscitate the economy in order to satisfy future debt obligations. The Buenos Aires debt deal, which came after more than a year of tense talks, was a “positive” signal, according to Aldo Abram, an economist at consultancy Libertad y Progreso, and the IMF’s release of $4.3 billion in Special Drawing Rights (SDR) to the country helped ease repayment worries this year. “Now we have the payments (to the IMF) covered,” he said.

Positive rumblings about progress on a new IMF pact have also aided, while external factors such as the US Federal Reserve’s more dovish position have bolstered emerging markets more broadly Others predicted that the forthcoming mid-term elections in November would weaken the Peronist coalition, which has seen its popularity plummet as a result of the pandemic, possibly tempering the ruling party’s more radical wing. “The result will be crucial to forcing consensus that will allow post-election strategies to address fiscal and monetary issues, as well as stabilizing divergent currency exchange rates,” said Gustavo Ber from Estudio Ber. “It’s also key to an agreement with the IMF to refinance payments.”