Since independence in 1816, Argentina has defaulted on its sovereign debt nine times – most recently in 2020, says Caitlin McCabe in The Wall Street Journal. Now a “sea change” is under way as libertarian president Javier Milei delivers tough medicine to end chronic “political chaos, runaway prices and government overspending”.
Milei has laid off tens of thousands of civil servants and slashed red tape as part of “chainsaw budget-cutting” measures, says Craig Mellow in Barron’s. Inflation has fallen from 20% a month in late 2023 to 2% a month now, a big improvement in a nation prone to hyperinflation. To general surprise, “widespread strikes or riots” have been largely avoided, with many Argentines recognising the need for change.
Government bonds have responded with an “epic rally”, while the local Merval share index is up by two-thirds in a year. Argentina was kicked out of the benchmark MSCI Emerging Markets (EM) index in 2021 owing to restrictive currency controls. With Milei in liberalisation mode, speculation has grown that a return to EM status could be coming soon.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
An upgrade wouldn’t change much for the average investor. As Diego Celedon of JPMorgan notes, Argentine shares would account for just 0.2% of the overall EM index should they return. But it would be a game-changer for shares in Buenos Aires, sending almost $1 billion of funds pouring in from automatic buying by global funds that track the index.
A mid-term setback for Javier Milei?
Signs of discontent are growing, including a general strike earlier this month, says The Economist. While Milei remains popular, at 45% his approval rating has dipped recently as austerity bites.
Last year’s victories over inflation were achieved partly thanks to strict capital controls and a currency peg. Those rules deter foreign investors, while the peg was quickly consuming scarce central bank reserves. Thus to general surprise, last week Milei – flush with billions of dollars in cash from a fresh deal with the IMF – substantially eased currency rules.
The peso’s partial float is a high-risk move that could send inflation soaring ahead of midterm elections due in October, says Ciara Nugent in the Financial Times. The currency dropped 6% against the dollar in the first week of the float, less than expected and a sign that markets have confidence in Milei for now. With the left-wing Peronist opposition still widely blamed for economic woes, Milei may still be able to expand his tiny congressional minority later this year.
“Argentina’s history has been a non-stop” run of economic “malpractice”, says Juan Pablo Spinetto on Bloomberg. Now it has “the best shot in many years” to put a stop to chronic “overspending and money printing”. Long a cautionary tale in textbooks, Argentina might just be about to become a “normal” country.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
-
Wallester Business: Simplify financial workflows with unlimited corporate cardsMake messy expense reports and card sharing chaos a distant memory with Wallester Business, an all-in-one corporate card and expense management platform
-
How to sell a property that floods – ways to avoid a 31% hit to your asking priceFlood risks can knock up to a third off the value of your home when you come to sell but there are ways to soften to blow
-
Should you invest in Pakistan – the Vietnam of South Asia?Opinion If Pakistan is now serious about reform, it’s time for investors to buy, says Maryam Cockar
-
'Why you must own gold and Bitcoin'Opinion The world is dedollarising, and gold and Bitcoin are the only alternatives. Buy now, says Dominic Frisby
-
How multi-asset trusts can help you deal with volatilityMulti-asset trusts help navigate global uncertainty and provide investors with an added layer of protection through diversification
-
When buying bank stocks, think small for the best valueBankers love to build bloated global empires, but that rarely rewards their investors, says Bruce Packard
-
How to find value in global equity marketsGlobal equities beyond America’s pricey market are bargains, says Rupert Hargreaves
-
Emerging market stocks deliver strong growth at a bargainEmerging markets offer access to some of the world’s most compelling investment themes – here's how to gain exposure
-
The most likely outcome of the AI boom is a big fallOpinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
The rise of Robin Zeng: China’s billionaire battery kingRobin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
