Don’t cry for me Argentina – the Buenos Aires stock market as top performer in 2019?

Don’t cry for me Argentina – the Buenos Aires stock market as top performer in 2019?
14 December 2018

Anyone who has ever been to Buenos Aires (where I am right now) will have noticed the blunted street corners. Virtually every street corner has been chamfered, as opposed to house corners in other cities usually being a sharp right angle.

No other city in the world has this feature as consistent as Buenos Aires. In Paris and Barcelona, you can find this type of architecture quite frequently in some parts of the city. However, only Buenos Aires has done it so consistently that in a city of thousands of street corners, you will find less than 20 street corners where this hasn’t been enacted.

Was it done to create additional window space for shops and restaurants? Or did the Porteños, as the residents of Buenos Aires are called, simply want to create a unique, beautiful feature?

None of the above.

Chamfered street corners, locally referred to as chaflan or octavas, were created to protect residents against robbers.

Before street lights were widely available, “one of the perils of the city were muggers who lurked around corners, ready to pounce on unsuspecting individuals,” says James Gardner in his incomparable “Buenos Aires – Biography of a City.”

By blunting street corners, residents could see what was around the corner and prepare themselves accordingly. Such a need was there for this kind of protection that chamfering street corners was required by law in 1821.

Little has changed for Argentinians with cash

This short excursion into history makes for a fun anecdote, but there is a serious connection to modern-day Argentina. There is probably no other place on earth as renowned for residents being robbed blind as frequently as the country of Evita, gauchos, and hearty steaks.

Only that at most any occasion, it was the government that acted as the biggest street mugger of them all, by way of taxes, fiat money, and outright confiscation.

Argentina has the dubious honor of being the only significant country in the world that managed to go from being a developing country to joining the league of the world’s wealthiest nations, only for it to then fall back to developing country status.

Booming agriculture catapulted it to the rank of 10th-richest country on earth by 1913, overtaking the likes of Canada, Japan, Italy, Spain, and New Zealand. Some even claim that at one point, Argentina had the world’s highest GDP per capita and even overtook the US.

These glory-times are long forgotten, though. Today, Argentina is usually ranked around #65 in the list of the world’s 185 nations, when measured by income. It’s well behind the likes of Turkey, Romania, and Greece. That’s quite a steep fall.

Argentina is probably best-known in finance circles for its spectacular 2001 government bankruptcy. Images of Argentineans queuing for hours to try and draw at least a little bit of money out of their failing banks went around the world. The banking crash led to the country’s middle-class losing two-thirds of their wealth overnight.

Ever since, Argentina has been a never-ending succession of crisis-measures and failed attempts to get out of the weeds.

In 2008, the government even stole money held in pension funds. Some $30bn tied up in private pension schemes were confiscated and added to the government budget. In best Big Brother fashion, the step was described by the government as being designed to protect citizens and the nation against the evil of international financial markets. I remain unconvinced that retirees who lost their life savings viewed themselves as “protected” by these steps.

Currently, Argentina has an interest rate of 60% p.a. to combat an inflation rate of 50% p.a.

I've met locals who now spend all of their savings on buying ever more horses, because horses can more easily be frittered away in their country-side estates. Evidently, the government is after everyone’s money!

So bad is the situation that if you pay cash in a shop rather than use an American Express credit card, you can easily get yourself a 30% discount. Equally, if you draw money out from an ATM using an international bank card, you end up paying a hefty 10% fee as well as some other hidden costs that take the total fee tally to probably well above 20%. What’s more, even major international banks don’t seem to let me draw out more than $150 per day.

Luckily, I also brought a wad of cash! Euros and Dollars are in high demand over here, e.g., my taxi driver from the airport to my apartment was extremely delighted about being paid in foreign currency.

If ever there was a major Western country with an apparent financial crisis, it’s Argentina. Visiting the country of 41 million people at this time is quite an experience. It teaches you how things can turn out when a debt-addicted government starts to lose control of the situation (ahem, Italy, take note!).

For most any normal investor, this appears to be a country that you shouldn’t invest a single penny in. Though some would disagree with that notion. E.g., there is one hedge fund manager – someone with a gold-plated track record of making money – who believes that now is the time to buy into Argentina.

Argentina as top-choice for 2019?

Europe is facing another year of political turmoil, and long-standing financial problems are resurfacing. In the US, the economy has started to stall.

Which are just two of the reasons why Robert Gibbins, founder and chief investment officer of Autonomy, believes that investing in Argentinian equities will be an exciting alternative next year.

Autonomy’s $5bn hedge fund was one of the top-performing funds in 2018, with a gain of 15.7% until the end of November. Their team is best known for heavily researching global macro situations and, once they are satisfied with their analysis, taking concentrated positions.

Argentina’s stock market is down 50% this year in Dollar-terms. The Argentinean Peso has lost a staggering 94% in value over the past ten years – speak of a case study for fiat money only ever leading to savers losing out! This year alone, the Peso has lost half of its value against the Dollar.

However, Gibbins believes that Argentina’s center-right President, Mauricio Macri, will get the country to steer back in the right direction. Following far-reaching measures to deal with the economy's long-standing structural problems, the International Monetary Fund (IMF) released a $50bn loan package in June. In September, it added another $7bn, following Macri reaching some significant milestones. The Peso has held steady since August, making Gibbins believe that the situation is stabilizing.

Gibbins is so optimistic about Argentina that he made a daring prediction in an interview with the Financial Times: “In 15 years, I think Argentina is going to be a normal country. That’s a huge call.”

Indeed, that is a very huge call. Right now, most anyone would call Gibbins out of his mind.

Bargains abound, even for the traveler

Walking around Buenos Aires and trying to get a feel for the local situation, it’s impossible not to notice how cheap the city has become.

Residential real estate in the very best part of town? A steal at less than $3,000 per square meter.

Coffee? Yours for less than 1 Dollar.

Steaks and wine? Don’t even ask…

I have only just arrived here, but it’s already evident that Argentina is one of the more interesting countries to take a look at given the current circumstances.

With another three weeks left to get a lot of writing done and continuing to research, do expect to hear from me again on this subject. I’ll also head over to Uruguay, the old-style banking haven across the Rio de le Plata. Stay tuned for more!

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