While the negotiation between the Government and the International Monetary Fund (IMF) because the US$44 billion debt continues to spread, the influential investment bank Morgan Stanley warned that, in case of going into default, Argentine stocks could collapse even more than in PASO 2019, when Alberto Fernández’s primary victory led to a record 50% drop in local assets in dollars.
According to a lengthy report published in the last few hours, stocks could suffer a additional drop of 70% in dollars, even when current prices are historically low. In addition, the bonds would also fall sharply, going from the current levels -35 dollars- to values closer to 20 dollars.
I also read: The Government assures that it has already presented its proposal to the IMF and is awaiting the agency’s response
Morgan Stanley, one of the main Wall Street entities, stated in the document that the possibilities of an extension of the terms for the agreement with the Fund increased after the last presentation of Martín Guzmán. The default, in any case, could not stretch too far in the face of the problems it would cause, starting with the foreign exchange front.
The deadline for not going into default is March 22, since USD 2,800 million are due that day and the Government does not have available reserves to cancel it.
According to the investment bank, this situation could not last too long, so there is a somewhat more positive “baseline scenario” if an agreement is reached: “Shares could begin to benefit from the gradual macro adjustment.”
An even more optimistic scenario posits that stocks could rise as much as 230% based on an update of rates and a strong recovery in activity.
Anyway, Morgan Stanley still does not recommend entering Argentine assets and assures that “there are no reasons to hurry” due to the strong uncertainty. The “catalyst” for a more sustained increase in local actions would only arrive in 2023 if there is a new change in the political cycle.
I also read: A Wall Street giant warned that “a light agreement” with the IMF “is doomed to failure”
Instead, he does consider that there is good opportunities in the bond market, even taking into account that there is a significant chance of renegotiation in the future due to the lack of access to the markets. Morgan Stanley’s preferred bond for 2022 is the 2041, above other titles arising from the exchange such as 2038 and 2046.
In addition, the report focuses on the shortage of dollars, warning that the Central Bank would already have negative liquid reserves for USD 700 million, a situation that will tend to worsen in the coming months.
Along the same lines as local economists, Morgan Stanley estimated that the inflation will reach 57% in 2022: higher than the previous year.