Fund managers recently burned by Argentina are doubling down on the country’s bonds, saying that prices have dropped to levels that should offer solid returns.
Many investors endured big marked-to-market losses in the wake of August’s primary election, which paved the way for a return of a Peronist government. Stocks and bonds plunged, while the peso dropped lost more than onefifth of its value against the US dollar.
But some say the market overreacted, arguing that Argentina is better positioned to avoid a repeat of its chaotic default on $100bn of debts almost two decades ago. Prices of the country’s sovereign bonds are now below levels some investors believe are in line with potential recovery values, once the debts have been restructured.
“If you look at where pricing is for sovereign bonds, about 40 cents on the dollar, there is some asymmetry here,” said one emerging markets investor who lost money in the rout. “Think about the restructuring for the 2001 default where you had recoveries in the low 30s, Argentina has different circumstances now. They still have a lot of debt but less than you had back then.”
Robert Gibbins, the chief investment officer of hedge fund Autonomy Capital, agreed that the election fallout presented an opportunity to take positions in Argentina’s $50bn of longer term debt, the majority of which is held by foreign investors. “The starting position here is just very different than where everyone remembers from 2001,” he said. His $6bn fund, an emerging market specialist, fell 16.3 per cent in the first two weeks of August, more than wiping out its gains from earlier in the year.
John Morton, a portfolio manager at New Jersey-based fund Lord Abbett, highlighted Buenos Aires’ progress in eliminating its budget and current account deficits.
“It came at a great expense . . . but I think [ Peronist candidate Alberto Fernández] is inheriting a situation probably as good as it’s been in probably eight years.”
