{"id":16470,"date":"2019-08-22T10:25:51","date_gmt":"2019-08-22T14:25:51","guid":{"rendered":"https:\/\/www.benefitscanada.com\/news\/what-argentinas-historic-market-crash-means-for-institutional-investors-134480"},"modified":"2019-08-22T10:25:51","modified_gmt":"2019-08-22T14:25:51","slug":"what-argentinas-historic-market-crash-means-for-institutional-investors","status":"publish","type":"post","link":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/2019\/08\/22\/what-argentinas-historic-market-crash-means-for-institutional-investors\/","title":{"rendered":"What Argentina\u2019s historic market crash means for institutional investors"},"content":{"rendered":"\n
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Martha Porado <\/span> | August 22, 2019 <\/p>\n

On Aug. 13, after Argentina\u2019s primary elections took a different direction than markets expected, the country\u2019s stocks suffered one of the most dramatic crashes in global history.<\/p>\n

\u201cIt was a super unusual reaction,\u201d says Jim Barrineau, co-head of emerging market debt at Schroders Investment Management Ltd. He notes the market crash was especially bizarre because it had no solid reasoning behind it. But for institutional investors looking at the country, the fundamentals haven\u2019t changed, he adds.<\/p>\n

The event itself came on the heels of the country\u2019s presidential primaries, which decided the parties that will participate in the presidential election in late October. Left-wing opposition leader Alberto Fernandez received much more support than was initially anticipated, says Barrineau. \u201cThe context was completely unexpected because all of the data and all of the polls were moving in the direction of the incumbent [Mauricio] Macri.\u201d<\/p>\n

Read: Geopolitical tensions high on investors\u2019 list when examining emerging markets<\/a><\/strong><\/p>\n

The crash was all the more extreme because it lacked a solid cause, says Barrineau. \u201cAt the end of a popularity contest like this, nothing like this is warranted in terms of price action.\u201d<\/p>\n

And it wasn\u2019t just stocks. Bonds were crushed and Argentina\u2019s currency tumbled as well. \u201cIt\u2019s a shock to the system because of that, and it happened, maybe, at the most illiquid market time of the year,\u201d he says. \u201cAnd asset prices just fell and there were some large indiscriminate sellers and then everybody panicked.\u201d<\/p>\n

Institutional investors are likely to have some exposure to Argentinian debt products as part of the larger emerging market segment of their portfolios, he says.<\/p>\n

In the days after the shock, markets have begun to slowly rebalance, says Barrineau. \u201cWe think the market needs some time to gain its senses. In a couple of weeks, there will be more liquidity in the market as everybody comes back from vacation, [and] we expect things will settle down a little bit. But there\u2019s no question that the odds that Macri will win the election come October are objectively lower than what they were . . . because he\u2019s been resoundingly rebuffed at the ballot box, even though there have been no practical consequences. But he [doesn\u2019t have] a zero chance of gaining re-election, which is what the market has been perceiving over the past couple of days.\u201d<\/p>\n

Read: Which emerging markets should institutional investors be considering?<\/a><\/strong><\/p>\n

However, he emphasizes, the International Monetary Fund is deeply invested in ensuring the continued success of Argentina, to the tune of US$56 billion. And while the possibility of more left-wing leadership could cause worries about the government\u2019s commitment to austerity measures, the idea that Fernandez will harm the situation is somewhat overblown, he notes.<\/p>\n

\u201cThere\u2019s no incentive for Fernandez to default or create any additional volatility in the markets and there\u2019s certainly no incentive for the IMF to stop working with Argentina. And the key thing for people to remember is that Argentina doesn\u2019t need to really pay back any debt through 2020. So the IMF has the country covered for the next 17 months or so. We think cooler heads will prevail and we\u2019ll begin to get a better idea of the direction of policy and the direction of market sentiment in the coming weeks.\u201d<\/p>\n

One potential reason for the extreme market volatility is Argentinians\u2019 awareness that it has defaulted on its sovereign debt several times this century, adds Barrineau. \u201cThey have that overhanging the country. And it\u2019s relatively fresh in the minds of Argentines. So when they smell volatility, the last thing they want to do is hold their currency; the first thing they want to do is move into U.S. dollars. So they\u2019ve been conditioned by history to do that. So then I think things get exaggerated.\u201d<\/p>\n

Read: Caisse taking stake in Brazilian oil and gas transportation company<\/a><\/strong><\/p>\n

Read the full article at BenefitsCanada.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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