Argentina Changes Limits on Funds’ Foreign-Company Shares

Argentina modified rules governing mutual fund investments in locally traded securities of foreign companies, changing the portfolio weighting and valuation of the assets.

The securities regulator modified the proportion of investments that mutual funds can hold in securities known as Cedears, which are peso-denominated shares and bonds of foreign companies, according to a resolution published on its website. The resolution also modifies how funds value their Cedear holdings, according to the website.

A detailed resolution will be published in the official gazette tomorrow and is designed to curb transactions in which investors circumvent currency restrictions by selling the securities for dollars abroad at a weaker exchange rate, the Argentine newspaper Ambito Financiero reported, without saying how it obtained the information.

Any new restrictions that require mutual funds to sell some of their Cedears could be a bid by President Cristina Fernandez de Kirchner to ease pressure on a parallel exchange rate that weakened to a record 8.48 per dollar today, according to Jorge Piedrahita, chief executive officer of New York-based brokerage Torino Capital LLC. Fernandez has imposed restrictions on dollar purchases since her re-election in October 2011 to stem capital flight.

“If you force a liquidation of those, you generate dollars,” said Piedrahita. The net effect would be an increased supply of dollars, which should ease the pressure on the parallel rate, he said.

The peso closed at 5.102 per dollar today in the official market. The gap to the parallel rate surged after the nation on March 18 raised the tax on credit and debit card purchases abroad to 20 percent.

Fernandez met yesterday with Vice President Amado Boudou, Finance Minister Hernan Lorenzino and central bank chief Mercedes Marco del Pont to discuss the drop in the parallel peso, according to Buenos Aires-based newspaper Clarin.

Telephone calls to the securities regulator’s press department seeking comment on the resolution went unanswered.

Fund managers will now have to value Cedears not traded on the Buenos Aires stock exchange at the official exchange rate instead of a higher market rate, said Luis Celasco, who manages 1.7 billion pesos of Argentine debt at RJ Delta, a unit of Raymond James Financial Inc. in Buenos Aires.

The resolution could saddle the funds with volatility and losses, since few Cedears trade on the exchange, Celasco said in a telephone interview.

The extra yield investors demand to own Argentine dollar bonds over Treasuries rose 14 basis points, or 0.14 percentage points, to 1,217 at 6:40 pm in New York, according to JPMorgan Chase & Co.’s EMBI Global index.

To contact the reporter on this story: Camila Russo in Buenos Aires at crusso15@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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