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Super peso: the market is excited by exchange rate stability but still sees risks - Infobae
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Súper peso: el mercado se ilusiona con la estabilidad cambiaria pero todavía ve riesgos
Luego de varios meses de volatilidad en el mercado financiero, el peso argentino mostró un notable fortalecimiento frente al dólar. El carry rinde 17% en dólares desde inicios del año. Pero una estrategia de inversión tan riesgosa, ¿podrá sostenerse?
www.infobae.com
September 09, 2024
After several months of volatility in the financial market, the Argentine peso has shown a notable strengthening against the dollar. The carry yield has yielded 17% in dollars since the beginning of the year. But can such a risky investment strategy be sustained?
By Matias Barberia
The Argentine peso strengthens, but analysts warn of latent risks in the foreign exchange market
The recent appreciation of the Argentine peso has generated renewed enthusiasm in the markets, with the financial dollar in decline and exchange rate gaps reaching their lowest levels since May. This situation has fueled the illusion of stability among investors, who are once again betting on the peso through the carry trade and other instruments in pesos. However, consulting firms such as GMA Capital and Econviews agree that there are still latent risks that could threaten this calm, including the intervention of the Central Bank , the evolution of inflation and the demand for dollars in an adverse external scenario.
In recent weeks, the various financial exchange rates, such as the MEP and the contado con liquidación ( CCL ), found a respite that surprised the markets. According to GMA Capital , “the CCL was trading at $1,340 at the beginning of August and worried investors, but by the beginning of September it had fallen back to $1,275, a 5% drop .” This decline was accompanied by an active intervention by the Central Bank (BCRA) , which since July began to sterilize pesos by selling dollars in the financial market, managing to stabilize the CCL below $1,300. Added to this dynamic was the relative calm in nominal rates in pesos, which fueled the success of the carry trade.
Delphos Investment also highlighted this downward trend in dollar quotes, with the CCL falling more than 3% in one week, closing at $1,255, while the MEP ended at $1,245. This drop coincided with a greater supply of dollars in the official market, which allowed the BCRA to buy reserves for the first time in weeks, accumulating US$ 92 million . “The CCL/MEP continues to approach the lows in real terms of the first semester with the exchange rate gap below 30%,” said Delphos , which represents good news on the financial front for the government, although challenges remain.
Carry trade advocates, such as Nery Persichini and his team at GMA Capital , see several factors that could support a favorable scenario for this financial strategy. First, the Central Bank 's intervention in financial dollars has been key. Since July, the monetary authority has been actively operating to keep the CCL stable below $1,300, using part of its reserves to sterilize pesos. This support in the exchange market contributes to generating confidence in investors who bet on rates in pesos.
Another positive factor has been the progress of money laundering, which has allowed dollars to enter the financial system. This process, which could externalize between 30 and 40 billion dollars, not only improves the reserves of the BCRA but also increases liquidity in the local market. This, in turn, reduces the pressure on the financial dollar quotes, maintaining the exchange rate balance.
In addition, the Investment and Job Creation Incentive Regime (RIGI) , which includes large-scale projects such as the YPF and Petronas LNG plant , also acts as a stabilizing factor. These investments, which could total more than $40 billion, would generate an additional flow of foreign currency without having to resort to the BCRA 's reserves .
Controlled inflation is another pillar that supports the success of the carry trade. The cost of living has remained stable, with monthly increases of close to 4%, while the Government continues to implement measures to slow prices. Greater stability in inflation makes high nominal rates in pesos more attractive to investors, while reducing the risk of a sudden devaluation.
As for the money supply, the issuance of pesos remains controlled, which prevents additional inflationary pressures. Although the monetary base has increased, it remains at historically low levels in relation to GDP . This has prevented the excess of pesos from being dumped in an uncontrolled manner into the financial dollar, facilitating exchange rate stability.
Finally, the relative calm on the trade front and the growing dependence on the financial account also favor this scenario. Although there are some risks related to the trade deficit, financial flows have partly offset the demand for dollars in the official market. In this sense, the low interest rates in the United States , anticipated by some analysts such as Miguel Kiguel of Econviews , also play in favor of the continuity of the carry trade, by encouraging international investors to seek higher returns in emerging markets such as Argentina.
Despite the positive scenario for the carry trade, analysts continue to point out the risks that could jeopardize the exchange rate stability achieved so far. GMA Capital warns that one of the biggest challenges remains the intervention of the Central Bank . Although the monetary entity has allocated some 1.85 billion dollars to stabilize the CCL , this support is not infinite. “The BCRA would be willing to use another USD 1 billion to keep the CCL stable ,” they emphasize, but the dependence on reserves is a factor that could become unsustainable in the medium term.
Econviews , for its part, highlights the risks associated with the dynamics of the exchange rate gap . Although the gap has fallen to minimum levels since May, the consultancy warns that this could harm key sectors such as the automotive and construction sectors. In addition, they mention that, although the fall in the gap is positive in terms of confidence, it does not completely eliminate the pressures on exports. “The fall in the gap reduces the profitability of exports,” they point out, which could generate long-term complications in important productive sectors.
Delphos Investment points out that the drop in CCL and MEP prices , although welcome, should be closely monitored, especially in a more adverse external context. The recent decline in oil prices and the volatility of commodities generate uncertainty about the expected energy surplus . “Brent ended the week at US$ 71, the lowest level since December 2021,” they warn, which could negatively impact dollar flows and increase pressure on BCRA reserves .
PPI also expresses concern about the growing current account deficit, especially as imports, following the adjustment of the payment scheme, begin to overlap. This overlap could increase the demand for foreign currency in the coming months. “The foreign exchange trade deficit could reach US$2,454m in October,” they estimate, which would put further pressure on the Central Bank ’s net reserves , which are already in negative territory. In addition, they mention that the demand for dollars for tourism remains high, which worsens the outlook for the balance of services.
Finally, economist Gustavo Ber focuses on the external and internal factors that could complicate the current stability. He highlights that the expectation of interest rate cuts in the United States could become a double-edged sword. “Wall Street is extending the more cautious tone after the initial swings,” he explains, which could have repercussions on local assets if international signals become less favorable. In addition, he points out that, although financial flows have been positive, concern persists about the rebound in imports after the reduction of the PAIS tax, which could generate greater pressure on financial dollars in the coming months.
