Argentina is finally on the road to recovery, having been welcomed back into the fold by the global financial community.
Last week, Buenos Aires celebrated the revival of its stock market with the first new local listing on the exchange in six years. It has helped bring an end to a dark period of isolation since Argentina defaulted on its debt in 2001.
Shares in local confectionery company Havanna were twice oversubscribed – with seven per cent of shares sold to overseas investors. The company operates 300 cafes across Latin America and the US.
All sell its famous version of regional delicacy alfajores, a biscuit sandwich filled with dulce de leche, a kind of caramel sauce, and covered in chocolate.
Havanna raised $11.4m, and this was only the first of many upcoming flotations, says Emilio Ilac of the Puente brokerage which arranged the sale.
“There was so much demand for this stock. This is very encouraging not only for Havanna but also for other businesses who want to go public,” he told local media.
The Buenos Aires Merval stock exchange is up 36 per cent year to date, which is largely due to euphoria surrounding new President Mauricio Macri, who took office in December last year. “We were delighted to see the appointment of Macri and his reform drive,” says Marie Owens, chief economist at Indosuez Wealth Management.
Indeed, Havanna waited for Macri’s premiership to begin before listing. “We’ve been preparing for two or three years… We were ready in early 2015 but decided to wait for a new government to come in and then make the jump,” said the company’s chief executive Alan Aurich.
Macri replaced President Cristina Fernandez de Kirchner. Throughout de Kirchner’s premiership, Argentina was involved in a protracted legal fight stemming from its default on $100bn of debt in 2001.
A battle ensued, especially with several prominent hedge funds. She branded the funds “vultures”, and her refusal to negotiate was a stance welcomed by many Argentineans.
Macri’s more conciliatory tone brought a resolution to the wrangling, and in April Argentina returned to the international debt markets with a bang. It sold $16bn of government debt to global investors clamouring to join in – the issue was four times oversubscribed and it went down as the largest emerging market bond auction in history.
It’s a sharp change from the shunning Argentina previously received. And it wasn’t because the country had nothing to offer – “opportunities have always existed in this country,” says Xavier Hovasse, head of emerging equities at Carmignac – rather the economic and political climate weren’t supportive of investment. Macri has pleased investors by taking tough action to fix the economy. He devalued the currency 36 per cent and has cut energy and transport subsidies.
“Macri has the best team in place to return Argentina to its justified position within the global economy,” says Oliver Bell, manager of the T Rowe Price Frontier Markets Equity fund. “Argentina is on the road, albeit a rocky one, to recovery and growth.”
It’s been positive so far, but Macri has his work cut out for him. “He doesn’t have a majority in congress,” says Owens.
“The happiness we felt over his election and reform programme has to be measured against the probability of his plans actually passing congress.”
“He has had some successes but things are hotting up. People found it less than amusing that he has been cutting energy subsidies and doing all the things that have to be done.”
The immediate effect of Macri’s cut to energy subsidies has been a big jump in energy prices – which meant inflation hit the highest level for 14 years during April.
“Macri needs to maintain his popularity over the coming months as the population starts to feel the impact of the adjustments,” says Bell.
“The mid-term elections next year are an important marker; if Macri can do well in those then we could be looking at a further six years of this very capable government and a rejuvenated Argentina.” Market participants will be keeping a close eye on developments.