Hedge funds and money managers have flocked to Argentine markets in 2024, betting on President Javier Milei to breathe new life into the country’s ailing economy, according to a report by Wall Street journal.
And it seems his leadership has already paid off, with Buenos Aires stocks on track to be the best performers globally this year, while government bond prices have surged. An exchange-traded fund tracking the MSCI Argentina index has jumped over 60%.
Milei, a libertarian outsider who won the presidency by promising deep spending cuts, famously used a chainsaw during his campaign to symbolise his commitment to economic reform. Since taking office in December 2023, he has enacted a series of sweeping measures, including halting public works, slashing transfers to provinces, and cutting utility subsidies. He has also narrowed the gap between official and black-market exchange rates.
These radical changes have caused significant economic hardship, exacerbating Argentina’s already high poverty levels. However, inflation has drastically slowed, and for the first time in more than a decade, Argentina has reported a quarterly fiscal surplus. Recent data shows the economy emerging from recession, growing by 3.9% in the third quarter of 2024 compared to the previous quarter.
This shift has prompted a dramatic change in investor sentiment toward a country long beset by political instability, rampant inflation, and excessive government spending. Argentina has defaulted on its sovereign debt nine times since its independence in 1816, most recently in 2020.
Genna Lozovsky, Chief Investment Officer at Sandglass Capital Advisors, a London-based hedge fund, called the turnaround “breathtaking,” saying bondholders could see significant gains if Milei’s fiscal policies hold and inflation continues to slow.
Argentina’s bonds have already surged. The ICE BofA US Dollar Argentina Sovereign Index, which tracks the nation’s hard-currency debt, has posted a total return of around 90% in 2024.
Meanwhile, the S&P Merval Index, which tracks Argentine stocks, has skyrocketed more than 160% this year, far outpacing global stock benchmarks. Even after adjusting for currency fluctuations, the index is still up more than 100% in US dollar terms – compared to the S&P500’s 25% gain during the same period.
Investment firms focusing on emerging markets and distressed debt have been key beneficiaries of this rally.
“Argentina was one of our biggest winners this year,” said Aaron Stern, Chief Investment Officer of Converium Capital, a multistrategy hedge-fund firm in Montreal overseeing $500m. “Generally, I don’t like saying ‘this time is different,’ but I think the backdrop globally and domestically is more favourable than it’s been in recent history for Argentina.”
Converium began buying Argentine sovereign bonds after its launch in 2021, capitalising on low prices following a 2020 restructuring. Stern saw little downside, given the low prices and the fact that the government wasn’t facing imminent debt repayments. Meanwhile, any improvement in Argentina’s situation could result in significant gains.
At Shiprock, a hedge fund focused on distressed and special situations, nearly $800m in assets have been bolstered by Argentine debt holdings, which have contributed to a 34% gain through November 2024, according to sources familiar with the firm’s performance. The firm has invested in sovereign, corporate, and Buenos Aires provincial debt.
However, some investors remain cautious due to Argentina’s struggle to rebuild its foreign-exchange reserves. The country faces a multibillion-dollar shortfall in hard currency, raising concerns about its ability to meet bondholder obligations.
Alessandra Alecci, a debt fund manager for Carmignac, a French asset manager, has voiced concerns about the reserve shortfall, estimating it to be around $8bn. Nevertheless, she acknowledged that it’s hard to remain pessimistic about Milei’s economic reforms given their ongoing success.
To strengthen the country’s financial position, Milei has pursued a new loan from the International Monetary Fund (IMF), enabling his government to lift the strict currency controls that have stifled business activity for years.
Some investors are optimistic that Milei’s growing relationships with figures like Donald Trump and Elon Musk could help Argentina secure a deal with the Washington-based IMF. An IMF spokeswoman confirmed this month that negotiations with Argentina are ongoing.
Carmignac, the French investment firm, started cautiously investing in Argentina last fall as Milei gained traction in the polls. The firm now holds a larger stake in Argentine sovereign debt, along with approximately $200m in Argentine stocks.
Carmignac’s portfolio managers are optimistic about Argentina’s economic prospects, a sentiment that was further bolstered after a small team, including co-founder Edouard Carmignac, met with Milei in Argentina last month.
