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  • Argentina ETFs In A Sovereign Default Scenario 0 comments
    Apr 4, 2013 1:59 AM

    Still living under the shadows of the 2002 Sovereign Default, is the state of Argentina which is all set to repeat the feat. Such is the irony, that the nation which although is easily chronic to state defaults since late 19th century, this time around has the will and the currency to pay off all its debts but still is stuck in a ten year old legal tug -off war with the Wall Street hold out firms. The legal drama now seems to be coming to a Tee point, where either way could easily result in a fresh state default.

    The Sovereign default in 2013 is an inevitable scenario for the nation and that itself makes Argentine ETFs and Equity attractive especially at a time when most global analysts agree on the otherwise good fundamentals of growth and on the near bottoming out of the Argentine Stock Market. Foreign Investors who may add exposure to market traded Argentina funds will be doing so at the prices that may never be seen again, once a definite court ruling is passed out.

    The current state of things is evident from the fact that cost of insuring Argentine debt has gone plus four times in flat 12 months ending March '13.

    The default which may occur due to 1.36 billion is not at all a problem with the Argentine Treasury which is today sitting atop a $41 billion of Cash reserves.

    If streets are to be believed then the country will default, simply because that the only way to avoid paying humongous amounts of the cash to the Hold out Buyers who did not accept the previous debt restructuring conditions and want their full share back.

    An exposure to argentina etf means a stake in the 20 most liquid stocks of the companies that perform business in the country and their foreign listed derivatives.

    The country's attitude is best described as "contumacious" in the very words of the Judge Reena Raggi herself, who is presiding over the case of Argentina V/s the hold out debtors primarily Elliot Associates. The firm has spearheaded the legal attack on the South American nation and almost tasted victory in wake of lower court's Judge Griessa's order which they are currently fighting in the higher courts. Judge Raggi understands the deadlock situation of this decade long court room battle and is no mood to pay heed to any of the Argentine defense tactics that may further prolong this case.

    Keeping up with the facts will also conclude a most logical solution which will result in Argentina giving the hold out parties, stakes in performing state bonds in lieu of the defaults one from 2002. Thus a very visible spread is seen across the board between the prices of the Govt. bonds and the credit default swaps.

    The Governments' litigation may not be good enough against the arsenal of hold out hedgers but easily manages to get Presidents Kirchner's message across, which says "We told you so" to the state heads of countries like America, in case of a payment default.

    The state bonds are simply following the suitand the 2017 benchmark bonds are trading lower than ever. The mystic that now involves around this legal tiff will not allow the Treasury Bonds or the Argentine funds and stocks to surge unless a definite resolution in either direction appears.

    For some may be the verdict is out even now with a no clear winner, as now very few logical options are available and the state will have to adopt one of them, sooner than they think.

    President Kirchner is long proposing a wishful swap with the hold outs, luring them with 20-25 year yield bond. This will empower her to mop up the issue with a little less than $300 million dollars against the payment of $ 1.26 billion that the hold outs are demanding.

    Whether this abides by the local laws or not, the state seems to have no option to pay the said money or simply default on it. My money is definitely on the latter.

    Global X FTSE 20 argentina fund delivers as per the performance of the FTSE Argentina Index post the yearly expenses of 0.75%. The argentine fund issuers boast of the fact that the exposure is limited only to the 20 most liquid Argentine securities and their derivatives that are listed in the foreign exchanges.

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