05/02/2021
Soy comes back to the rescue
Monthly Report
05/02/2021
Argentina: Monthly Report
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Soy comes back to the rescue
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Tailwinds are
blowing, now we need extra rains. The remarkable surge in commodity prices
revitalized the strategy of keeping the statu quo until October. The chances of
success of this strategy have greatly improved, though risks remain
sizable against the backdrop of large monetary financing and high external
financing needs.
Betting on a
consumption boost. The economic team plans to
stimulate consumption in order to turn the activity rebound into a
concrete improvement in terms of incomes and employment. Still, we expect
activity to post modest within-year growth as there is little room to
boost imports, financial conditions remain restrictive and growing
imbalances will probably cap investment.
The inflation
acceleration consolidates. The 2019-20 monetary
expansion gained weight as money velocity accelerated, the exchange rate
peg lost its grip on expectations and service prices recovered some of
the lost ground. Looking forward, high inflation levels seem an
inevitable consequence of choosing monetary financing. Imbalances will
probably cap investment.
Pressures pile up on
the financing front. The planned fiscal expansion
could help stimulate activity, but it also means adding extra pressure on
the financing front. With no access to external financing and a limited
domestic market, monetary financing will have to step up.
And the suggested
trades are... While we wait for a catalyst for
Argentine assets, we prefer to place dollar bets through our SBS Latam
FCI fund as a vehicle to invest in a diversified portfolio composed of
high quality regional fixed income assets. Among peso investments, we
highlight our SBS Renta Pesos FCI fund as an attractive instrument to
place bets on inflation linkers against the backdrop of an inflation
acceleration scenario.
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