Si! Argentina is also a frontier market fairy tale!
Brazil’s bovespa index, the real and its sovereign debt have plunged and soared in the last year in response to its political news flow rollercoaster. The resignation of Dilma Rousseff triggered Latin America’s most-frenzied bull market in the real and the Bovespa in 2016. Now President Michel Temer’s systemic bribery allegations gutted Brazil’s financial markets. I was horrified to see the iShares Brazil country index fund tank 17 per cent in a single trading session while the Sao Paulo Borsa shut down. It is impossible to pontificate on Brazil as its latest sordid political drama plays out other than to reiterate my old Victorian surgeon’s motto: when in doubt, cut it out!
Ever since the Mexican peso devaluation of 1994, I learnt the hard way that cross-border contagion is an existential reality in Latin America. When financial Black Death hits the region, fund managers in Gringolandia do not sell what they want, they sell what they can as cross-asset margin calls cascade. So it did not surprise me to see my favourite Latin American stock market since late 2015, Argentina, get slammed in the Brazilian meltdown.
However, any hit in Brazil is a chance for UAE investors to accumulate Argentina, my frontier market fairy tale along with Pakistan. Why?
One, political stability is as valuable as it is ephemeral in the Third World (now politely known as ‘emerging markets’!). President Mauricio Macri is a pro-market reformer committed to economic globalisation who ended 12 years of Peronist socialist misrule under President Néstor Kirchner and his wife Cristina Fernández. The Argentine right, haunted by the memories of the sala guerra, the tragic dirty war under military dictator generals Viola, Videla and Galtieri, has embraced a moderate reformer and a team of ex-JPMorgan Chase technocrats in the Casa Rosada. Hola amigos!
Two, Macri has not just talked the talk but walked the walk. He devalued the Argentina peso and abolished currency controls. He settled with Paris Club holdout creditors and guided Argentina’s return to the global capital markets with a wildly-successful Eurobond in April 2016, up 12 points after I recommended it in this column as a must own US dollar new issue. Thanks to Macri’s reforms, Argentina has now issued $30 billion in foreign debt, a stellar track record for a nation that once precipitated history’s biggest sovereign default in 2001. Even Eva Perón in the Recoleta would be proud of the Argentina of 2017!
Three, since BP Securities in Buenos Aires is chaired by my old Chase training class hermano Alejandro Allende, I have impeccable insights into the Argentina money game. Alex told me on the eve of Macri’s election that Argentine banks could be triple baggers under the new regime. Hence I was able to gift my readers Banco Macro ADR’s in New York, up 200 per cent-plus since Macri’s election. As I still tell my dad, if you think Wharton’s expensive, try ignorance! For Gulf investors still skeptical about Argentina, note that the Merval is up 48 per cent in the last twelve months. 2016 was the year to do the Tango Argentino on the Rio Plata!
Four, Pakistan has been upgraded to emerging market by Morgan Stanley Capital International. Argentina is next. Stay tuned while I scan the smoke signals at MSCI.
Five, Argentina still faces monumental economic issues, a legacy of the failed Peronist decade and the hyperinflationary debt crises of the 1990s. Inflation is an awful 24 per cent. The Peronistas and the hard left, the voice of the gauchos and the descamisados (poor), are still powerful in Congress. Macro’s 3.5 per cent of GDP fiscal deficit target seems unrealistic in 2017. Argentina is Brazil’s largest trading partner and vulnerable to Chinese appetite for soft commodities and meat from the pampas. Yet as George Soros advised, the big money is often made when things go from Godawful to just plain awful.
Greek equities were leprosy for me since 2010, when Athens near defaulted on its sovereign debt. However, after a Great Depression scale economic slump and epic labour/pension/fiscal reforms, bailouts, the IMF, EU and Berlin have led to another emerging market Cinderella. In my youth, the Akti Meoli in Piraeus and the Grande Bretagne in Syntagma Square were my banker hangouts — plus Mykonos. It is time to return to the Hellenic morning of creation in the Greek isles!