Argentina’s national elections are this weekend and investors appear optimistic about the outlook for regime change in the South American country and that optimism is reflected in the Global X MSCI Argentina ETF (NYSEArca: ARGT). The lone Argentina exchange traded fund is up 7.1% over the past month.
However, some analysts believe Argentina’s election will not bring the needed reforms to bolster the country’s flailing economy, South America’s third-largest.
Pavillion’s Alex Bellefleur, François Boutin-Dufresne and Pierre Lapointe “write that while all candidates, including frontrunner Daniel Scioli, acknowledging that the economy needs help, “Argentina doesn’t have a particularly bright track-record of good macroeconomic management.” More to the point, with inflation up 26% year-over-year, a weak currency and falling reserves, it’s hard to see how effective the government can be in stabilizing the economy,” reports Dimitra DeFotis for Barron’s.
Last year, Argentina defaulted on its debt for the second time in 13 years.
“Argentina is headed for another collapse. The test for the next president will be how to juggle the economic adjustment while restoring institutional credibility and recovering a culture of tolerance,” reports the Wall Street Journal.
For close to two years, Argentina has been at odds with creditors, including some well-known U.S. hedge funds. Last year, the country offered “holders of its 7% Boden 2015 various options. They can either cash in at 97 cents on the dollar or swap into 8.75% Bonar 2024s at 99.70 for every 100 of the 2015s exchanged, plus accrued interest,” according to Reuters, a deal the country’s creditors are balking at.
Investors rejected that deal, which was not surprising because most debt swaps involve incentives for the creditor, but in this case, Argentina demanded a premium. [Argentina ETF Sees Big Inflows]
The government is allowing the market to adjust prices after spending billions of U.S. dollars to buffer the economy. The country’s foreign reserves have declined at a $1.1 billion per month rate over the past year and now sits at an eight-year low. [Argentina ETF Plagued by Peso Plunge]
“The country is not doing particularly well from a balance of payments point of view either. Argentina’s terms-of-trade have barely improved in 2014 despite the fall in oil prices. Global food prices, including that of soybeans, the country’s main commodity export, have abated in the past 24 months,” Barron’s reports, citing Pavillion.
Global X MSCI Argentina ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.