Argentina Combines Rosario Exchanges, Appealing To Long-Term Investors

Includes: ARGT, TEO
by: Mary Daniel

Argentina’s Rosario Stock Exchange and Rosario Futures Exchange (ROFEX) are planning a merger that would boost competition with the Buenos Aires Stock Exchange in equity derivatives products. The combined exchanges would have the power to produce indices of its own. ROFEX has been looking for ways to increase its international visibility and plans to introduce a multi-asset class trading platform in the first quarter of 2012.

The exchange recently joined SunGard’s global network in 2011, enhancing international connectivity, order routing, and market data capabilities. The exchange is already planning new products and marketing the opportunities for cash-futures arbitrage, as well as margin efficiencies from clearing on a single platform. ROFEX is also considering the benefits of integrating with other regional stock exchanges of Argentina. Joining Mercado Integrado Latino Americano could also be in the cards.

After eight years of strong economic growth spurred by government policy, the government is determined to avoid another slump by pushing pro-growth measures and attracting more foreign investment. It might be working. Huge resources of shale gas and oil are attracting the likes Exxon Mobil Corp (NYSE:XOM). US-based Deere & Co (NYSE:DE) is putting $130 million into building a factory. Italy’s Fiat SpA is putting $100 million into a factory. US based AGCO (NYSE:AGCO) is spending $140 million on a factory. Italy’s Pirelli & Co SpA is building a $500 million plant. Canada’s Research in Motion (RIMM) is building a $23 million factory. Italy’s Telecom Italia SpA (NYSE:TI) is planning to spend $3 billion to expand its services. Argentina’s Molinos Rio de la Plata SA is spending $130 million to expand its plant. Foreign direct investment surged 54% in 2010 from the previous year.

Telecom Argentina (NYSE:TEO) is a leading communications provider in Argentina. The company’s net income and cash flow has increased at a steady pace in the past five years. It would stand as a solid investment. However, as is the case in Argentina, policy shifts are to be expected. Investing in any one company might pose higher risk. An ETF allows investors to spread their bets so that any one policy change would not cause drastic results in the portfolio. The Global X FTSE Argentina 20 ETF (NYSEARCA:ARGT) would provide enough exposure across the market to hedge one’s bets with as little risk as is possible in this emerging market.

Argentina is a long-term bet. The country is rich in natural resources and an educated work force. Previously in Argentina, there was little vision for long-term development, but that is changing. The latest investments have been focused on large sectors like agriculture, telecommunications, and transport. There has been an increase in investor confidence, but concerns remain.

The Argentine Merval stock index has dipped 31% this year and is facing its worst yearly loss since its 49.8% plunge in 2008. This move to combine the Rosario exchanges is a policy that will produce profits as opposed to risks. The investment in Argentina has to be in the long-term potential. Investing in the short term will lose money.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.