Goldman Sees Argentine Local Peso Futures as Devaluation Hedge

Argentine local peso futures controlled by the central bank can serve as a hedge against an expected devaluation, according to Goldman Sachs Group Inc.

Policy makers are intervening in the local peso futures market as offshore contracts show traders expect a faster depreciation after President Cristina Fernandez de Kirchner’s successor starts unwinding currency controls. Argentina has limited the peso’s decline through a foreign-exchange swap with China, restrictions on imports and limits on dividends, Mauro Roca, an economist at Goldman Sachs, said in a report e-mailed Wednesday.

The local futures “provide an attractive hedging opportunity against sharp exchange-rate corrections during the challenging transition,” Roca wrote.

Non-deliverable peso forwards due in 12 months show the peso will weaken 30 percent to 12.7 per dollar from 8.87 per U.S. dollar, while local contracts indicate it will slide 22 percent. The peso’s 10 percent decline over the past 12 months is the smallest in six major Latin American countries after the Chilean peso even as inflation accelerated to above 30 percent.

Roca estimated the central bank owes exporters $5 billion and that companies have about $10 billion to $13 billion in trapped dividends, about equal the central bank’s net reserves.

The fair value of the peso is 11.6 per dollar, or 24 percent weaker than the current exchange rate, Roca wrote in the report.

Argentina’s central bank said in an April 6 statement that it’s intervening in the futures market “in the context of a series of measures implemented in the last six months that have the aim of reducing devaluation expectations and securing financial stability.”

The central bank said it posted a record profit of 1.2 billion Argentine pesos from the futures market in March and that it gained 4.97 billion pesos in the past six months.

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