Mobius Says Argentina Stocks Cheap, But Liquidity Still a Drag

  • Franklin Templeton chairman prefers banks, telecom stocks
  • 120-day limit on portfolios barrier to investment, Mobius says

Almost a year after a new government swept into Argentina promising to loosen capital controls and lure foreign investors, Mark Mobius is betting on the country’s stocks. But he says the options are still limited for traders looking to ride the rally that made the Merval one of the world’s top performing equity gauges this year.

Mobius, executive chairman of Templeton Emerging Markets Group, which has $26 billion under management, says he will remain focused on American depository receipts of Argentine companies as long as rules require that portfolio investments stay in the country for 120 days, a policy that he says limits market liquidity.

"It’s difficult for us to invest if there’s no guarantee we can get the money out at short notice," Mobius said in an interview from Dubai. "We invest in countries for a long time, but it’s part of our obligations to investors. The currency is already pretty stable, so it all depends on how things go with the foreign exchange rule. That will give more confidence to us and other investors."

Argentina’s stocks have surged 41 percent this year after President Mauricio Macri was elected in late 2015 on a pledge to reinvigorate an economy damaged by years of government interference including currency controls and capital restrictions. Even after the rally, the Merval’s price-to-adjusted-earnings ratio is just two-thirds of the level for Brazil’s Ibovespa.

Argentine stocks were downgraded to frontier market by MSCI Inc. in 2007 due to the capital restrictions, and to Mobius, the 120-day limit still represents a prerequisite for a return to emerging-market status.

In June, MSCI Inc. will announce whether Argentina has been upgraded to that level, putting it on a par with Brazil and Mexico, from the current frontier status it shares with Kenya and Kazakhstan. Mobius expects the upgrade to increase liquidity and drive up stock prices, when it comes.

"It’s possible that the process will be delayed," he said. "At the end of the day, the MSCI people will be very cautious. People who follow the indices are very sensitive, they need liquidity."

The next big event for Argentine stocks will be a recovery in the economy of Brazil, the country’s main trading partner, he said. Franklin Templeton, which already has an office in Argentina, has no plans to expand its operations there.

Mobius’s top pick is Argentine banks, followed by the telecommunications industry. He is also considering private equity investments and holding on for more initial public offerings as the market picks up.

"We’re really interested in seeing more choices in Argentina," Mobius said.

    Before it's here, it's on the Bloomberg Terminal.