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  • Has Argentina Bottomed Out 0 comments
    Feb 15, 2013 3:14 AM

    The second largest South American economy posted a continuous real annual growth of 7%-9% between 2004-2011, whilst juggling with the 2001 Sovereign default and a $100 billion debt restructuring plan. The proven bounce back abilities and existing low prices make a valid case for investing in selected Argentina funds and stocks that are most likely available at the cheapest valuations we may see in our lifetime.

    A definite depiction of Argentine fiscal health is the Merval Index which shed down almost 9% in 2012. If this represents a bottoming out scenario for the financials of the country then equity and related investments should pick up. As per the IMF and FIEL reports the economy could barely manage a 1.5% growth in the past financial year and there may be further downside in this context considering that the inflation growth for the coming year is forecasted at 24% annually. American investors seeking financial adventure in foreign lands and multi-fold gains should take a closer look at the NASDAQ listed Argentine ETF which uniformly expose to the twenty most liquid and mostly large cap company securities that have their majority business interests vested in Argentina but for all the right reasons are listed on the other global exchanges primarily in the form of American derivatives [ADRs].

    The downside fastened with the state's announcement to nationalise its largest oil and gas company YPF S.A. The fact that it rubbed wrong shoulders with management of Spanish Repsol (technically Repsol holds the controlling stake in YPF) led to the YPF ADR collapsing as much as 70%. Further a regulatory move earlier in the year 2012 proved to be unfavourable towards the market as it increased the excess capital from 30% to 75% that dividend paying financial institutions must hold. So some banks like Banco Macro (NASDAQ:BMC) had to suspend dividend payments. A weak Peso coincides with the dismal sate of the ruling party which under the rule of country's president Mrs. Kirchner is already under shadows of political trouble and debt.

    One impressive fact is that it is the third largest middle class economy in the Latin American region and the notable growth rates from the year 2003 to 2011 has made it progressively important in current years. The economy has leisurely improved after 2001 (the same year in which the country defaulted on $132 billion in public debt); it grew at a steady pace of 7% to 9% in the subsequent years. The country restructured about 100 billion in bonds in 2001; many investors have been rewarded in recent years as these bonds were linked to the nation's GDP.

    Easiest access is through Equity traded funds offering diversified exposure (and minimising risk) to this country under a single United States traded security. Individuals looking for more precise savings can also purchase American Depository Receipts (OTC:ADRS); these are United States traded securities replicating performance of the foreign stocks on their respective stock exchanges and are primarily introduced for excess fund procurement.

    More prevalent options include ETFs attuned to the performance of FTSE Argentina 20 Index; these pure play funds will give assets in the form of 20 most liquid and largest corporations actively involved in this nation's economy.

    Fundamentally Argentina has nothing withstanding growth and years prior to 2012 have seen pro-growth data for basic issues like Unemployment Rate, Exports and Infrastructure spending.

    FTSE bound Argentine Fund may easily turn out to be the surprise disclosure and rewarding for systematic investors who are willing to play on the downside that arises from a fresh state default scenario and those who are convinced with the nation's prowess to contain the on going legal tiffs with the multi billion dollar fund houses that do not agree with the 2002 debt re structuring policies of the then ruling government.

    ARGT Global X Fund is a pure play product that delivers as per the returns of the FTSE Argentina Fund after the annual expenses of 0.75%. The bench mark comprises of 21 stocks. Sector-wise consumer staples and material industry account for 69% of the holdings. Mercadolibre Inc. and Arcos Dorado Holdings Inc make for 27% of the assets but the top holding for ARGT is Tenaris S.A. ADS with 21.21% of assets assigned to the stock.

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