Buenos Aires — No investor with experience in Argentine markets will ever forget the black Monday that followed former president Mauricio Macri’s comprehensive defeat in the Open, Simultaneous, and Mandatory Primaries (PASO) of 2019. Suffice it to say that the S&P Merval experienced the second-largest ever one-day drop for a leading stock market index in the history of global capitalism.
While the outlook for this Sunday’s primaries is entirely different, investors are well aware that the PASO are likely to prove a turning point. Hence, brokers tend to recommend tweaking portfolios with the utmost attention leading up to election day. In this context, Bloomberg Línea presents some of the top bond picks from the country’s leading brokers, allowing investors to see which fixed income experts prefer as Argentines head to the polls on August 13.
Portfolios for Conservative and Aggressive Investors
Portfolio Personal Inversiones (PPI) has set up two portfolios with exposure to Argentine fixed income instruments for the month of August. The conservative portfolio consists of 40% dollar-denominated corporate bonds, 40% provincial bonds in dollars, 10% sovereign bonds in dollars, and 10% peso-denominated sovereign bonds. The aggressive portfolio is made up of 35% sovereign bonds in dollars, 35% dollar-denominated provincial bonds, 10% sovereign bonds in pesos, and the remaining 20% in Argentine equities.
Within these segments, these are PPI’s recommendations:
Corporate bonds in dollars: 25% in the Telecom Argentina bond due in August 2025, 25% in the IRSA bond due in January 2024, 25% in the Genneia bond due in September 2027, and 25% in the YPF bond due in September 2033.
Provincial bonds in dollars: 50% in the Neuquén bond due in April 2030, 30% in the Santa Fe bond due in November 2027, and 20% in the Mendoza bond due in March 2029.
Sovereign bonds in dollars: 40% in the Global 2035 bond (GD35), 40% in the Global 2038 bond (GD38), and 20% in the Global 2046 bond (GD46). All three are instruments issued under US law.
Sovereign bonds in pesos: 40% in inflation-adjusted bonds (CER), 30% in dual-currency instruments, 20% in dollar-linked bonds, and 10% in fixed-rate bonds.
Exposure to Sovereign Bonds
A monthly report from the Buenos Aires-based broker Facimex Valores recently pointed out potential value in an increased exposure to Argentine sovereign bonds, highlighting the Bonar 2030 (AL30) and the Global 2041 (GD41) as their main bets. Regarding the former, the significant spread between the Argentine-jurisdiction 2030 bond (the AL30) and its US-law counterpart (GD30) has led many investors to find appeal in reallocating capital to the instrument with local jurisdiction. Currently, the GD30 is 21% more expensive than the Bonar.
Facimex’s report states that “provincial bonds remain very attractive complements, especially the short end of the Córdoba curve; while we have reduced exposure to corporates due to strong compression recently, and are being very selective.”
“In the peso-denominated realm, we continue to concentrate exposure in CER [inflation-linked instruments], overweighting Lecer and combining them with instruments from the long segment (2024 and 2025); although we find it appealing to complement CER exposure with some coverage via dual-currency and dollar-linked with short maturities until 2024.”
As a summary, Facimex Valores’ report emphasizes, “For dollar-denominated fixed income portfolios, we find it appealing to maintain exposure, with 40% in sovereigns, 40% in provincials, and 20% in corporates (30/40/30 until last week).”
Possible Scenarios for the Results on Sunday
The brokerage firm Cohen Aliados Financieros has developed two possible scenarios for the August 13 PASO election results. The first, to which they assign a 60% probability, is that there won’t be clear winners or losers. The second option, with a 40% probability, is that Juntos por el Cambio (opposition coalition founded by former President Mauricio Macri) will achieve a clear victory. In both cases, the authors of the report are inclined to set up a portfolio containing a mix of AL30 and GD38 bonds (20% in the base scenario and 30% in the alternative scenario).
A Strong Buy Recommendation
After the Chubut elections, Adcap Grupo Financiero issued a strong buy recommendation for Chubut’s 2030 provincial bond, assigning it a potential upside of over 11%. The firm highlighted that the newly elected governor, Ignacio Torres:
- Formed an alliance with the Private Petroleum Workers’ Union based on the drafting of a bill that advocates for a special exchange rate regime labelled “Oil Dollar”.
- Plans to revive the conventional oil industry, recover production, and explore unconventional resources.
- Supports the development of renewable energies, including the construction of a high-voltage line and the production of green hydrogen.