15/07/2019
Argentina: Monthly Report
Politically uncertain until the last day
15/07/2019
Argentina: Monthly Report
|
|
|
Politically uncertain until the last day
|
|
|
Polarization
leaves third parties out of contest. The two main
political forces moved closer to the center leaving third parties out of
contest and shaping up a scenario of extreme polarization. In the
meantime, FX stability boosted the government and polls show the match is
now practically tied ahead of the primaries. During the following month,
better external conditions and BCRA’s firepower should be enough to keep
the FX market under control and favor the government in subsequent polls,
though political uncertainty will probably last until the very end.
Economic activity
finally takes a turn. Activity figures confirmed the
economy bottomed in February and performed well during both April and
May. The outlook appears to have improved amid FX stability and lower
inflation, anticipating modest growth ahead of the election.
Exchange rate
stability reinforces the disinflation path. The latest
changes to the FX intervention rule alleviated markets. In turn, this
helped stabilize peso demand decelerating inflation and feeding a
recovery for both confidence and expectations. Ahead of coming months,
low exchange rate volatility and stable regulated prices should help the
disinflation effort.
The fiscal
consolidation moves forward and the financing outlook improves. May’s
fiscal balance once again reflected the government’s commitment to
spending reduction. However, it also showed revenues remain under
pressure and could compromise this year’s fiscal targets. Meanwhile, improved
local and external conditions allowed the financing program to show some
positive results in June.
And the suggested
trades are... To capture positive external conditions
without exposing to Argentina's political risk we suggest our Franklin Templeton SBS Latam FI USD FCI.
Instead, those betting in favor of policy continuity at the local level
should take a look at our Franklin Templeton SBS Argentina FI USD FCI.
Regarding local currency positioning, we see value in short end inflation
linkers (A2M2/TC20) amid their total return outlook and ability to profit
from a decline in real rates, while those aiming at lower interest rate
risk will find our SBS Pesos Plus FCI very valuable. Among
equities, the recent shift in market sentiment outlines a perfect moment
for banks (GGAL and SUPV), while from a fundamental standpoint utilities
(TGS and PAMP) and oil & gas (YPF) are attractive sectors.
|
|
|