Wastrel governments the world over are borrowing at negligible rates of interest (some at less than zero). Argentina, for all intents and purposes, can’t borrow, at least not on the international capital markets. The country’s a mess and it pays mess-appropriate yields. The Argentine value opportunity is the subject at hand.
Like Russia, Argentina is so bad that it almost can’t get worse. Notice: almost. In human affairs, there’s always room for deterioration. The speculator in Argentine debt and equities may possibly suffer a permanent loss of capital. However, we judge that – again, as with Russia – valuations favor the optimist. Grant’s is bullish on the Country that Ruined Itself.
In a sense, Cristina Fernández de Kirchner, the disastrous two-term Argentine president, stands to do the value-seeking investor not one good turn, but two. In misgoverning, she’s wrecked the economy. By stepping down, she’ll improve it. Her policies have destroyed asset values. Her leaving will crystallize the opportunity to participate in the recovery of those values.
When Vladimir Putin may choose to become the ex-czar of Russia is anybody’s guess. When Fernández leaves office is already on the calendar. Her constitutionally mandated departure corresponds to the next presidential election in October 2015. Bloomberg recently quoted an Argentine asset manager, Claudio Porcel, to the effect that her successor, whoever he or she might turn out to be, will be a person to be envied: “The next president will regain market access and be able to raise as much as $60 billion in sovereign, provincial, and corporate debt. I can’t imagine a better job.”
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A general strike in Argentina last week, the second in five months, is testament to how very much room there is for improvement. The unofficial – therefore, reliable – inflation rate is running near 40%. Business activity is stagnant or shrinking. The free-market peso is setting new lows against the dollar. Power outages are recurrent. In the province of Buenos Aires, home to one-third of Argentina’s 41 million people, residential real estate sales showed a 20% year-over-year decline in July; they’ve been falling for 30 consecutive months. Domestic financing activity is moribund.
continue reading: http://blogs.cfainstitute.org/investor/2014/09/23/exit-of-argentinas-president-offers-value-opportunity/
