06/11/2020

Reality forced a U-turn

Monthly Report 06/11/2020
Argentina: Monthly Report
Reality forced a U-turn
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A double shift in the economic strategy. Financial pressures continued to escalate tilting the economic team into revising its strategy. Authorities started to rely on proper incentives rather than extra restrictions and acknowledged the need for a fiscal anchor to reduce monetary financing going forward. Now, the final step is to translate this simultaneous change in diagnosis and approach into a stabilization plan with concrete signs in terms of fiscal, monetary, FX and financial policy; and negotiations with the IMF seem like the ideal framework to unveil it.

Tackling uncertainty will be key for activity. Economic activity continues to recover in 2H20 but with declining monthly growth rates, as we expected. This reflects a slower rebound as the effect of easing restrictions fades away and exposes the permanent impact of the crisis.

Monetary policy takes a new role. So far, monetary policy had a pretty passive role within macroeconomic policy. However, the diagnosis of the economic team changed drastically during October and monetary policy has now taken a crucial role for economic stabilization, with the latest measures aimed at tightening monetary conditions.

The much-needed anchor must come from fiscal policy. The economic team showed the first signs that modify two key aspects of a 2021 Budget that failed to stabilize the economy. Meanwhile, the financing front continues to reflect sustainability concerns reminding us that the anchor the economy desperately needs must come from fiscal policy.

And the suggested trades are... Argentine assets have not yet priced the double shift in the economic strategy, leaving attractive investment opportunities in fixed income dollar bonds through our SBS Renta Dólares FCI fund and in equities through our SBS Acciones Argentina FCI fund. Moreover, we highlight our SBS Capital Plus FCI and SBS Renta Pesos FCI funds as ideal vehicles to capitalize on the macro implications of the expected stabilization plan.
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