News Center

Investors Send Argentina Assets Up As Govt Loses In Midterms
Wall Street Journal
June 30, 2009

By Matthew Cowley Of DOW JONES NEWSWIRES

BUENOS AIRES (Dow Jones)--Investors on Monday sent Argentine bonds soaring, and bid the local currency and stocks after the ruling coalition suffered a significant setback in midterm Congressional elections, raising hopes of a friendlier environment for business and foreign investment.

The country's sovereign bonds jumped several points as investors welcomed what they saw as curbs on the wide-ranging powers of the ruling couple of President Cristina Fernandez and her husband, former President Nestor Kirchner.

Kirchner's slate in Sunday's elections came second to the Union Pro ticket of Francisco de Narvaez.

The market reacted positively because there will be a "limit to the absolute power" of the Fernandez administration, said Jacqueline Maubre, head of asset management at Cohen Financial Services Group in Buenos Aires. "The country is no longer governed unilaterally."

It's too early to say if the rejection of the Kirchners at the polls would translate into an immediate change in policy. Investors have fretted about the close relationship between Argentina's first couple and other populist leaders in the region such as Venezuelan President Hugo Chavez, fearing that Argentina would increase the presence of the state in the business sector if they had done well in Sunday's vote.

For starters, the poor showing of Fernandez and Kirchner means they will lose working majorities in both houses in Congress when the new legislature takes office in December.

Investors believe that giving room to other voices in the legislature improves the overall outlook for the Argentine economy, and also removes some of the threat of a default on sovereign debt, Maubre said.

Argentina's risk premium, as measured by JPMorgan's Emerging Markets Bond Index Global, was 1.1 percentage point tighter at 10.3 percentage points over U.S. Treasurys Monday. The Argentine index was gaining 8.9% on the day, which comes on top of 48% gains since the beginning of the year. The pre-election rally in Argentine bonds this year was mostly related to the turnaround in sentiment about emerging markets, but the move Monday reflected renewed enthusiasm for the country's prospects.

The country's sovereign debt, especially the bonds denominated in dollars were the best performing assets so far. Discount bonds due 2033 gained 4.875 to 51.625 bid, while the 2038 Par bonds were up 3.25 at 26.5 bid, according to Reuters. The country's 2012 Bonden was trading at ARS255, up 7.75% in price terms, to yield 23.55%.

Argentina's Merval Index, meanwhile, rose 1.68% to 1,606.68 points, and the peso strengthened reversing its recent weakening trend, as the steady flow of pesos out of the country halted temporarily. The currency was trading at ARS3.79, compared with Friday's close of ARS3.80.

Still, no one expects immediate changes. Argentina's economy is going through a rough patch as its main commodities exports are hurting by lower international prices and an ongoing conflict between the government and producers. Foreign direct investment, a broad measure of international interest in the country, has been lagging significantly behind its giant neighbor Brazil, which is widely perceived as having a more pragmatic and business friendly administration.

"The headline defeat of the Kirchner Administration allows investors to reevaluate credit risk in terms of lower policy risk against still favorable technicals in terms of distressed credit spreads and light overall positioning," said RBS Securities in a research note.

The currency remains a point of weakness. Analysts believe it's too expensive at current levels, given high inflation, and the need to replenish fiscal coffers and foreign exchange reserves.

RBS said the election results "reinforce our view that post elections there will be an evident greater tolerance for a weaker currency," though it said there wouldn't be a sharp devaluation. RBS said it expects the currency to start drifting towards ARS4 per dollar in July.

-By Matthew Cowley, Dow Jones Newswires; +54 11 4103 6740; matthew.cowley@dowjones.com

U.S. Government
Takes Action

Click here to view letters by the Administration and Members of Congress on Argentina's debt and economic policies.

The Debt and Europe

Click Here To Read More

ATFA Member Spotlight

National Taxpayer's Union

Open Letter to the U.S. House of Representatives: Protect Taxpayers from Judgment-Evading Nations

Click here to view other ATFA member activity

Join Us
Show your support for ATFA and our work regarding debt default by joining our growing list of supporters.

Tell Your Friends
Do you have friends or colleagues who would be interested in supporting ATFA? Send them an invitation to this site by clicking here.