Argentina’s choice in October elections will determine investor behavior

Argentina’s choice in October elections will determine investor behavior
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Taking into consideration the upcoming presidential election in Argentina, most investors are reluctant to increase their portfolio allocations in the South American country. Opportunities are lining up, though, and investors should wait for their chance in the Argentina of the future.

Voters in Argentina will be presented two different economic models this October, when they will have to choose one. Many investors are seeing this possible change as an opportunity to get their hands on stocks and private equity investments at below market prices.

Even though investors are being cautious at the moment, many analysts agree that Argentina now has, after many years, the opportunity to receive a massive amount of investments from private companies interested in the country’s natural resources, industries, and highly qualified labor force.

With the American economy giving clear signs of recovery, supported by a stronger dollar, we could start seeing a wave of money flowing to other countries like Argentina and Brazil if they offer a safe environment for investments.

Offering this kind of favorable environment is key in this case, since usually investors don’t like risk (foreign investors like it the least). Opportunity is what foreign investors really love, and it requires more than just raw material production to keep a nation of 41 million people booming and with full employment.

Investments in the industrial sector are fundamental to replace the commodities export model currently established in many countries around the world, which are suffering the consequences of historically low oil and soy bean prices.

Although it’s very difficult for investors to do a proper forecast when official statistics are being questioned in Argentina, many of them agree that just a small change in the right direction would be enough to attract their attention to the country of the steak and malbec.

Among the changes investors are looking to see are some revisions on the imports and currency restrictions policy, which would allow them to fully operate in Argentina.

Dollar market prices for the January futures contracts are above 10.26 pesos per dollar, giving a 13.7% market’s devaluation expectancy for the beginning of next year, from a current exchange rate of 9.03 pesos. This rate is significantly below the illegal market dollar price, currently at 12.65 pesos per dollar.

An elimination of the currency exchange restrictions would make these two rates merge into one, which would be closer to what the economists are aiming to have next year to increase industrial competitiveness.

Moreover, energy experts are expecting to see the value of a barrel of oil close to $70 in 2017, and they forecast the price of the crude near $80 for 2018.

This situation could be very beneficial for Argentina’s energy sector in the long term. A higher price per barrel would create favorable conditions to affront the exploitation of Vaca Muerta’s shale oil formation, which also holds the world’s second-biggest shale-gas reserves.

International market analysts and Argentine people in general are expecting to see some change in the short term, after the new president takes over. Investors, however, are in “wait and see” mode – ready to deploy billions of dollars in Argentina, but only if better conditions for business are assured.

Categories: Finance, Latin America

About Author

Miguel Ferreyra de Bone

Miguel is a guest lecturer of Macroeconomics at the Universidad del Salvador in Buenos Aires, Argentina. His past experience includes an advisory role at Banco Galicia, the largest private bank in Argentina by AUM, and as a commodities analyst at both Cargill and Ledesma. Miguel is proficient in Spanish, English, and Portuguese.