Investors ignore Argentina repayment risks
By Paul Kilby
NEW YORK, Jan 16 (IFR) - Markets are shrugging off looming amortisation spikes in Argentina this year and banking on the current regime muddling through until a more market-friendly government takes the reins of power come the presidential elections in October.
Realistic or not, the buyside is nevertheless pricing in that best-case scenario for Argentina, which despite last year's technical default proved to be one of the best performers in the emerging markets universe in 2014.
Last year the Argentine sovereign component of the EMBI Global index tightened by 89bp, versus 45p for the overall index. It was a similar story for the country's corporates, which rallied by 143bp compared with a 67bp widening on the corporate emerging market index - the CEMBI.
And accounts expect more upside with the departure of President Cristina Fernandez de Kirchner, whose economic policies are seen to be holding the country back.
"We have an election this year. It is the last time the Kirchners can be in government and the three candidates are more market-friendly," said a Buenos Aires-based trader. "Bonds are not expensive and if you compare them with the rest of the region they are cheap."
Such performance has partly been spurred by support from US distressed players in search of opportunities outside their home market.
Taking a long-term view, accounts have broadly been betting that regime change in 2016 will result in a quick resolution to the holdout crisis, renewed access to the international capital markets and a fast economic turnaround.
"In our view the situation with holdouts will be resolved between now and reasonably shortly after the election of the new government," said Paolo Valle, senior portfolio manager at Manulife Asset Management, which is overweight Argentina and manages some US$4bn in EM assets. Continuación...