Bloomberg — Gramercy Funds Management, one of Argentina’s most-loyal bulls, is once again forecasting a comeback for the nation’s $65 billion of beleaguered foreign debt — just as the bonds slump to lows for the year.
Odds are rising that voters — faced with triple-digit inflation amid a looming recession — spurn President Alberto Fernandez’s left-leaning government in October’s elections and welcome a more market-friendly leader, said Kathryn Exum, director and co-head of sovereign research and strategy at the Greenwich, Connecticut-based fund.
For Gramercy, that turns recent losses in the serial defaulter’s dollar debt into an opportunity. Key notes tumbled this week to the lowest this year, with those due in 2030 dangling yields of roughly 23%.
“We’re constructive around current prices and see significant upside,” Exum said. “It’s a good time to revisit the credit as there’s likely political and policy change on the horizon.”
Gramercy has often taken an optimistic approach on Argentina — even in times of trouble. Its portfolio managers embraced the volatile bonds after the 2020 restructuring, saying the debt relief would spur a virtuous cycle of economic recovery.
That recovery failed to materialize. The extra yield investor demand to hold Argentina’s bonds over US Treasuries has soared well above 26 percentage points, according to data from JPMorgan Chase & Co. — the second-highest risk premium in Latin America, after Venezuela.
Annual inflation accelerated more than expected to 104% in March, with the nation facing another year of economic contraction as a historic drought cuts key crop exports. The Treasury is leaning on increasingly creative measures to protect dwindling international reserves, while the country keeps losing court battles with Wall Street.
Gramercy’s Exum sees it all as an opportunity. A new government, she said, could lead to an aggressive economic stabilization plan, a renegotiation of the $44 billion lending arrangement with the International Monetary Fund and a deal with bondholders on the foreign notes.
While the field of candidates isn’t fully known, polls spotlight Buenos Aires Mayor Horacio Rodriguez Larreta, former defense minister Patricia Bullrich and libertarian political outsider Javier Milei performing well against the incumbent coalition. Early provincial elections showed growing support for opposition-aligned candidates, giving an early indication of what the nation’s August primaries will look like.
“As time passes and we get greater clarity on candidates, the floor on bonds will move up,” said Exum. “Our base case is that ultimate recovery is materially above current prices.”
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