Argentina’s part-nationalisation of oil firm YPF has concerned investors, but the government only took shares from where it could make a case – a huge import bill for fuel and dividends leaving the country. The nationalisation has little to do with economics and everything to do with politics – to remain in power, populist steps are being taken. But YPF was an easy target – other nationalisations will be much harder. Argentina has a well-educated population, ample natural resources and infrastructure potential that can utilise these natural resources. The question we should ask is not if it is safe to invest in Argentina, but when is the right time to do it? The spooked stock market is trading on a forward price/earnings ratio of 4.8 times – offering huge potential upside. It’s certainly safe to invest, and the right time is now before the upside is realised.
Sven Richter, head of frontier markets, Renaissance Asset Managers
The whole YPF saga is symptomatic of wider problems in the economy. For foreign operators based in Argentina, the incentives to expand production have been diminished by an increasingly restrictive and distorted business environment. The relentless drift towards a more “short-termist” policy agenda over successive Kirchner governments is undeniable and, while we doubt that Argentina is about to launch into a full-blown programme of expropriation, investors will be justified in asking where this cycle might end. As such, the prospects for foreign investors look a lot more uncertain in light of Monday's decision. This is likely to reaffirm Argentina's position as one of the region's laggards in terms of inward investment and adds to the sense of a government taking increasingly desperate measures to keep an unsustainable economic model going.
Michael Henderson, Latin America economist for Capital Economics