Argentina is poised to return to capital markets in a year regardless of who wins October presidential elections, and a stock rally will follow, according to Itau BBA.
The next administration will resolve a legal conflict with holdout creditors from the country’s 2001 default, lowering borrowing costs and paving the way for the country’s first overseas bond sale in 15 years, according to Ricardo Cavanagh, the head of equities at Itau for the Southern Cone and Andean region. That will spur a wave of investment that should propel stocks higher, particularly banks, he said in an interview.
“What’s coming next is a country that will regain full access to the capital markets, and that will bring opportunity,” Cavanagh said in Buenos Aires. “This is a country that’s thirsty for investment.”
Since its record $95 billion default in 2001, Argentina hasn’t issued debt in global capital markets. While it has managed to sell bonds at higher rates under local legislation, a decade-long conflict with creditors who shunned previous restructurings has blocked the nation from tapping markets during a period of record low interest rates globally.
Argentina’s benchmark Merval stock index has gained 19 percent in dollar terms at the official foreign-exchange rate this year. American depositary receipts for banks, which are more liquid than the local shares, are a good opportunity because Argentina’s ratio of credit to gross domestic product is just 14 percent, compared with about 65 percent for Brazil and 85 percent in Chile, Itau’s Cavanagh said.
Itau expects the yield on Argentina’s benchmark 2033 dollar bonds to compress to 5 percentage points over Treasuries from the current 6.4 percentage points.
While Itau is recommending investors buy across all Argentine equity classes, banks are the top pick because of the potential for deposit and loan growth, Cavanagh said. The average duration of a loan in Argentina is only one year currently, and banks, companies and individuals will benefit from longer-term financing.
“Banks will likely grow a lot,” he said. “What you need now is funding, then some lower inflation.”
Banco Macro SA, Grupo Financiero Galicia SA and BBVA Banco Frances SA all have ADRs trading in New York.
Banks currently pay clients about 23 percent on their certificates of deposit compared with annual inflation estimated by economists at about 25 percent.
Cavanagh said proposals from the leading candidates are converging, indicating that the next president will rule more from the center and will seek to promote investment while maintaining social welfare programs, he said.
President Cristina Fernandez de Kirchner, who installed capital controls starting in late 2011, is set to leave office on Dec. 10 following Oct. 25 elections. Daniel Scioli, the candidate of the ruling party, is leading the opposition’s Mauricio Macri in most polls.
“Independently of politics, the economic cycle calls for a new cycle,” he said.