LOCAL STRATEGY
Less than 2 weeks remain for the primary elections, and volatility is expected to remain in the local market. A positive result for the ruling party could generate a greater rally in the stock market, especially in cyclical sectors and in those which are lagging. The result is still uncertain, so we recommend having a conservative position.
The electoral scenario is somewhat clear as the electorate would be divided into two: center left and center right, which would be almost binary, continuing to generate uncertainty until the primaries take place. Although investors are now assigning a greater probability of a favorable result for the Government, as volatility remains high, we do not recommend increasing exposure to domestic stocks. At current prices, Banks and Oil & Gas sectors accumulate a better year-to-date performance than the rest, so in a negative scenario in the primary elections (victory of more than 6% in favor of the Fernandez-Fernandez formula), these stocks would be exposed to a higher risk. In a positive scenario, these sectors could stand out in the short run while laggard stocks could rise in a later stage. One of such sectors is Utilities.
Companies with low debt in dollars and hard currency denominated revenues would be the most benefited. In addition, companies with high dividend yields would also experience lower volatility. At current prices, certain stocks remain with very attractive valuations, such as Ternium (TXAR) and natural gas distribution companies, especially Distribuidora de Gas Cuyana (DGCU2).
Highlights
- The Merval index hiked 10.47% during the last 7 days, in line with the developed markets’ trend.
- Agribusiness companies were the best weekly performer.
- Financial companies were the worst performers.
- Merval Argentina Index Control Board.