Fears of a full-blown financial crisis in Argentina have once again come rushing to the fore.
In the wake of Argentine President Mauricio Macri’s stunning rout in primary elections over the weekend, investors dumped its stocks, bonds and currency en masse in a selloff that left much of Wall Street wondering whether the crisis-prone nation was headed for yet another default.
The upset, widely seen as a preview of October’s presidential vote, threw the doors open to the very real possibility a more protectionist government will take power come December and unravel the hard-won gains that Macri made to regain the trust of the international markets.
Photo: Reuters
It deepened worries his populist opponent, Alberto Fernandez, and Fernandez’s running mate, former president Cristina Fernandez, will try to renegotiate its debts as well as its agreements with the IMF.
The nation has billions in foreign-currency debt due over the coming year.
“The market is starting to price in default,” said Edwin Gutierrez, the London-based head of emerging-market sovereign debt at Aberdeen Asset Management.
“The market is unwilling to give [Alberto] Fernandez the benefit of the doubt,” he added.
Credit-default swaps showed that traders were pricing in a 75 percent chance that Argentina would suspend debt payments in the next five years. On Friday last week, the likelihood was just 49 percent.
Its US dollar-denominated government bonds lost about 25 percent on average, pushing down prices to as low as US$0.55 on the dollar. Yields on shorter-maturity notes soared past 35 percent.
The peso on Monday tumbled as much as 25 percent to a record-low 60 per US dollar and the Merval stock index lost the most ever in intraday trading.
Argentina has a long history of fiscal crises and it was only in 2016, under Macri, that the nation put its most recent sovereign default behind it. Argentines still remember the 15-year default saga and deep recessions following a record default in 2001.
The government and its subsidiaries currently have US$15.9 billion in debt payments denominated in dollars and euros due this year, according to data compiled by Bloomberg.
There are another US$18.6 billion in bond principal, loans and interest payments issued in pesos.
Investors are fearing the worst.
Alberto Fernandez was Cabinet chief under former Argentine president Nestor Kirchner, while his vice presidential pick, Cristina Fernandez, led the republic for eight years before Macri came to power.
During her time in office, Argentina was marked by currency controls, data manipulation and protectionist policies on trade to protect national industry. It was also punctuated by another default that made the country an international pariah for years.
“The hopes of Argentina becoming a sustainable, well-functioning economy have been shattered for now,” said Patrick Wacker, fund manager for emerging-market fixed income at UOB Asset Management Ltd in Singapore. “I do not see a silver lining in the results.”
The company expects to cut its exposure further on Argentine bonds once prices stabilize, he said.
“It is going to be an extremely tough period for Argentinian assets,” said Marcin Lipka, a senior analyst at brokerage Cinkciarz.pl in Zielona Gora, Poland. “Without moderation of the Fernandez duo and regarding increasing expectations of another fight with the IMF, I would not exclude that the peso could hit 100 level to the [US] dollar in the next 12-month period.”
In a press conference on Monday, Macri said he still has a shot to reverse the trend in October and that his economic team is working on measures to address voter concerns on the economy.
He also said that the market and international community lack confidence in Alberto Fernandez and the opposition as evidenced by the selloff.
EXTRATERRITORIAL REACH: China extended its legal jurisdiction to ban some dual-use goods of Chinese origin from being sold to the US, even by third countries Beijing has set out to extend its domestic laws across international borders with a ban on selling some goods to the US that applies to companies both inside and outside China. The new export control rules are China’s first attempt to replicate the extraterritorial reach of US and European sanctions by covering Chinese products or goods with Chinese parts in them. In an announcement this week, China declared it is banning the sale of dual-use items to the US military and also the export to the US of materials such as gallium and germanium. Companies and people overseas would be subject to
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) founder Morris Chang (張忠謀) yesterday said that Intel Corp would find itself in the same predicament as it did four years ago if its board does not come up with a core business strategy. Chang made the remarks in response to reporters’ questions about the ailing US chipmaker, once an archrival of TSMC, during a news conference in Taipei for the launch of the second volume of his autobiography. Intel unexpectedly announced the immediate retirement of former chief executive officer Pat Gelsinger last week, ending his nearly four-year tenure and ending his attempts to revive the
WORLD DOMINATION: TSMC’s lead over second-placed Samsung has grown as the latter faces increased Chinese competition and the end of clients’ product life cycles Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) retained the No. 1 title in the global pure-play wafer foundry business in the third quarter of this year, seeing its market share growing to 64.9 percent to leave South Korea’s Samsung Electronics Co, the No. 2 supplier, further behind, Taipei-based TrendForce Corp (集邦科技) said in a report. TSMC posted US$23.53 billion in sales in the July-September period, up 13.0 percent from a quarter earlier, which boosted its market share to 64.9 percent, up from 62.3 percent in the second quarter, the report issued on Monday last week showed. TSMC benefited from the debut of flagship
TENSE TIMES: Formosa Plastics sees uncertainty surrounding the incoming Trump administration in the US, geopolitical tensions and China’s faltering economy Formosa Plastics Group (台塑集團), Taiwan’s largest industrial conglomerate, yesterday posted overall revenue of NT$118.61 billion (US$3.66 billion) for last month, marking a 7.2 percent rise from October, but a 2.5 percent fall from one year earlier. The group has mixed views about its business outlook for the current quarter and beyond, as uncertainty builds over the US power transition and geopolitical tensions. Formosa Plastics Corp (台灣塑膠), a vertically integrated supplier of plastic resins and petrochemicals, reported a monthly uptick of 15.3 percent in its revenue to NT$18.15 billion, as Typhoon Kong-rey postponed partial shipments slated for October and last month, it said. The
RSS