Soy comes back to the rescue

Argentina: Monthly Report

Soy comes back to the rescue

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.