Argentine ADRs May Triple on Economic Reform, Raymond James Says

Argentina’s American depositary receipts may triple if the South American nation improves economic policies after the 2015 elections, according to Raymond James Financial Inc.

“Although the valuation gap versus regional peers has narrowed, we believe the value of Argentine stocks could double or even triple in the event the country’s micro and macro policies converge to the regional average,” Raymond James analysts Federico Rey Marino, Santiago Wesenack and Santiago Ruiz Guinazu wrote today in a research report to clients.

Argentina’s ADRs, or shares traded in New York, stand to gain, according to the report, even after surging to a three-year high after legislative primaries in August 2013 eliminated the possibility of President Cristina Fernandez de Kirchner running for a third term next year. Fernandez nationalized the country’s pension system and YPF SA, the biggest oil producer, while fiscal spending financed by printing money fueled the fastest inflation in the Western Hemisphere after Venezuela.

A “favorable outcome” in the case with holders of defaulted bonds demanding full payment “could be a key catalyst to unlocking the mid-term potential of the Argentine equity market,” according to the report.

An agreement with holdouts, which Raymond James expects will be reached this month, will allow Argentina to seek financing in international capital markets.

Market Capitalization

The debt placement will bolster the country’s financial flexibility until elections in October 2015, and a new administration will more likely address inflation and the fiscal deficit, Raymond James said.

With policy changes favorable to economic growth, Argentina’s market capitalization of $55 billion, or 17 percent of 2013 gross domestic product, may almost triple to $160 billion to match the regional average of 49 percent, according to Raymond James.

Shares of YPF traded in New York more than doubled in the past year to $35.79 as Empresa Distribuidora y Comercializadora Norte’s ADRs increased by almost seven times to $13.86.

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