Nomura’s Morden: Argentina Faces Risks From the Duration of Brazil Contagion (Barron’s)

Nomura’s Latin America credit strategist Siobhan Morden says she “would assume a quick rebound if the contagion recedes with the cheaper 30-year sovereign bonds perversely more vulnerable versus the 10-year.” Morden has recently written:

“Argentina is unfortunately not immune to the external contagion from either Brazil or core markets with the Argentine peso (ARS) the worst performing LatAm currency after the Brazilian real (BRL) and clear underperformance to the BB/BBB credits. Argentina is perhaps vulnerable on the economic channels of contagion via the bilateral trade flows on the manufacturing (auto) sector. However, the economic recovery is more biased on construction from public works and the agricultural sector. We would argue that it’s rather the weaker technicals as opposed to fundamentals with crowded long positions on local and external credit markets against still a high dependence upon external capital. BCRA [Argentina’s central bank] is now in a better position to sell as opposed to buy U.S. dollars with successful FX reserve accumulation over the past months. This may mitigate the financial contagion and prevent a de-leveraging of the carry trade in local markets but Argentina still has to raise $2.5 billion offshore and $7 billion onshore to complete their financing program this year. The virtuous circle in Argentina requires stable external risk to access capital to fund the slow economic adjustment. The risk for Argentina is not only the intensity but the duration of the contagion and we continue monitoring Brazil risk but also Trump risk (some initial stability in SPX and daily ETF flows) … “

To read the whole article, Argentina Sheds Brazil Contagion, Woos China, go to the website of Barron’s. In addition, check out our Argentina ADRs list and Argentina ETF list.

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