In the midst of the dollar debt rally, which accumulates an improvement of 32% since the beginning of the yearand after the first 100 days of Javier Milei’s government, three international banks anticipated that Argentine public bonds they still have room to growhand in hand with an improvement in macro variables.
On the one hand, a report from the investment bank Morgan Stanley, considered that “The macroeconomic stabilization of Argentina it is advancing rapidly. “The authorities are keeping their promises of unprecedented fiscal consolidation and replenishment of foreign exchange reserves.”
He JP Morgan For his part, he believes bonds still have an upward path ahead; while the members of the Bank of America (BOFA) After visiting the country, they returned “overweight” the weight of Argentine bonds in your portfolio.
The entity’s economists said yes “more optimistic than consensus” market participants on Milei’s ability to deepen fiscal adjustment, but acknowledge that the structural reforms the president will need to implement are “difficult” and that progress in this matter may be limited in the short term.
This makes Morgan Stanley revive two opposite scenarios for the future of thedollarized debt in view of the maturities scheduled for next year.
If Congress approves the Omnibus law, labor reform, new pension formula and income tax changes, believe the adjustment could reach 3.8 points of GDP this year or 5 points in two years, one of the fiercest in history. And that would mean that Argentina could meet debt maturities in 2025 “leaving its dollar sovereign bonds with a potential gain of 33% from current prices”
However, they warn: “The main risk for dollar bonds is that fiscal adjustment is not sustained and that all fiscal measures are rejected by Congress, leaving a primary deficit. If growth in foreign exchange reserves also fails to reach targets $12 billion expected in 2024, increases the likelihood of a debt restructuring in 2025.”
JP Morgan warns almost along the same lines: “Freedom is not free: the demonstration is justified, but the road ahead is not easy”. At the largest U.S. bank, the rise in bonds stands out after Javier Milei’s victory in November’s runoff elections, with increases even outpacing those of his emerging peers.
Looking ahead, they argue: “There are many political challenges and execution risks, but there appears to be a path to a political settlement along with increased IMF assistance aimed at eliminating capital controls; this could give more advantages to the recovery”.
JP Morgan’s baseline scenario for Argentina this year calls for a net reserve recomposition of $10 billion, a primary fiscal outcome that ends at zero this year and a slowdown in inflation. “The path to the benchmarks is fraught with risks, but the president seems determined,” the report highlights.
From this perspective, bonds could continue to improve their performance until July this year, and if the government gets more assistance from the IMF, they could extend this golden period until December. Yet, the bank does not exclude that Argentina will have to proceed towards a new debt restructuring by 2025. “Despite the recent rebound, bond prices remain in line with a scenario defined by a restructuring led by debt cuts.” short term”.
Despite this possible event, Morgan’s outlook is positive. On the one hand, they highlight the tendency of Javier Mieli’s administration to honor these debt commitments, which would make this restructuring more “favorable” to investors.
Finally, Bank Of America maintained its recommendation to be “overbought” on Argentine stocks, after its visit as investors to the country. “The trip confirmed our view that a political agreement on the fiscal compact and structural reforms is possible,” they explained in a report for their clients.
Source: Clarin
