By Gustavo Neffa
Director of Research for Traders
October was an atypical month. Of reversal. Of change of tendency. Not only for the global stock markets that had a fatal month pushed
by the abrupt fall of the US, but also in local markets that witnessed something that seemed impossible to give months ago: the stabilization and later fall of the dollar.
The 11% retracement that accumulated in October stems directly from the implementation of a new monetary policy strategy to raise interest rates and dry the square, which aims to curb inflation and, above all, that there are no pesos to burn even more the exchange rate run witnessed by the Argentine peso – almost uninterrupted – since the end of April.
For that, the Government had to sacrifice activity for tranquility through the implementation of a monetary plan with an extremely high interest rate in nominal terms that was successful in containing the dollar.
When the alms are great until the saint distrusts, but in the markets greed is stronger. And that is why we must take advantage of the moment of accruing interest rates in the short term, especially with a surprising calm of the dollar.
The flagship product is no longer the Lebac, the monetary instrument that has just two more maturities and would end at the end of the year thanks to the commitment of the Central Bank to cancel said debt.
The star product and that will increase is the Lecap, Capitalization Letters, because they capitalize interest every month. The last Lecap issued were 7 months (LTPY9) with a nominal annual rate of 53.9% and 18 months (LTPA0) that will yield 51.9%.
Of course, it will be an excellent investment and surpassing an investment in dollars if the exchange rate ends below $ 48.50 as of May 2019 and below $ 65.60 as of April 2020. No sensible projection estimates these values and the market of futures is more than one peso less for the first case. There are higher Lecap yields in the short stretch to less than 100 days around 60%, but we recommend going a bit further, anticipating a substantial drop in rates in 2019.
It is always advisable to tender and not buy in the secondary market. It is always verified that the letters quote above the next day.
Investors could be seduced by fixed-term investments with UVA plus a percentage. Banco Nacion stretched loan terms with a juicy UVA + 10% very aggressive to lengthen the curve and attract more long-term funding, although longer term plus risk, more in an election year. In general, the fixed terms with UVA do not exceed 5% above inflation, which is reasonable taking into account the projection of the evolution of prices that will remain very high for three more months.
Some more aggressive alternatives are bonds with CER. We like those of the shortest segment with CER + 6/8% yields above the Badlar rate alternatives.
There are also provincial letters with excellent returns. We recommend those of the Province of Buenos Aires between 40 and 80 days at court rates between 56 and 51%. Cutting rates have been increasing noticeably month by month.
The explicit desire of Bolsonaro's future economy minister to devalue the real is not incorporated in this analysis, taking it a little at 5 reais to the dollar, totally contrary to what is happening in recent days due to the massive inflow of speculative capital . That would force Argentina not to lose competitiveness by sliding its exchange rate little by little too.
And in relation to the bonds in dollars, as very aggressive we recommend, besides the Bonar 220 (AO20), the Bonar 20204 (AY24) that has two of the highest coupon rates and the second amortizing in May of next year part of the capital. Letes short to one year or less yield between 5 and 6%, which is an excellent investment if we think that the exchange rate at some point is triggered.
When will it be time to go dollarizing more the portfolio? When the exchange rate touch the lower band, according to the Monetary Program the BCRA will be able to go out to buy dollars to the market (today in 35 pesos, but that is increasing day by day at a rate of 3% per month).
The Plan estimates a nominal monetary base with zero growth by June 2019, but at the end of the year it will be able to increase the issue and the injection of liquidity for seasonal reasons. In addition, the end-of-year effect always includes caution, necessity for holidays and investment (bonuses). To be attentive because that will produce a fall in interest rates and therefore the time to bet on the peso is now and until December: the cost of a benchmark interest rate of the BCRA above 70% makes the private activity unviable and not It does more than complicate business.
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