LOCAL STRATEGY
After the primary elections’ unexpected result, Argentine securities’ prices slumped, pricing a very pessimistic scenario in the medium term. Although, certain stocks are attractive opportunities at current prices. We recommend eliminating exposure to utility companies due to high regulatory risk. Companies with high income in dollars and low debt would have a better relative performance in this scenario.
Alberto Fernandez's victory triggered very pessimistic expectations for Argentine securities. Uncertainty on his economic actions such as the possibility of FX and capital controls and a sovereign debt restructuring led to slumps in prices, therefore, we maintain a conservative strategy. As mentioned in last week's report, the "sell-off" scenario would favor companies in defensive sectors such as Aluar and Ternium, as well as those Argentine companies listed in NASDAQ or NYSE, such as MercadoLibre and Globant. The potential freeze on utility tariffs and FX controls continue to be the most relevant issues regarding the likely new administration.
Companies with a low level of dollar denominated debt and hard currency denominated revenues, such as Aluar, Ternium and San Miguel, continue to stand out and would act as a hedge. We recommend gradually reducing exposure to companies linked to sectors that may suffer tariff freezes, particularly those in the gas and electricity sectors.
Highlights
- The Merval Index dropped 32,64% during the last 7 days, in contrast to international markets.
- Companies in the Oil & Gas sector were the best weekly performers.
- Financials was the worst performing sector.