Mark Mobius Reports On Argentina
This morning I came upon an interesting piece on the Citywire (UK) website written by well-known emerging markets veteran Mark Mobius. The executive chairman of Templeton Asset Management recently visited Argentina and wrote about the South American nation’s investment prospects:
Looking at the Argentina economy, it is expected to contract by about 1.2% in 2009. In addition, the current account balance is projected to shift to a deficit of 0.5% of Gross Domestic Product (GDP) this year from an estimated surplus of 1.4% of GDP in 2008 mainly due to weaker commodity export prices.
By March 2009, Argentina’s stock market had declined 72% from its peak in June 2008. It had recovered by 24% by the end of May but the economic prognosis is not good as a result of a poor political and economic environment. Economic activity has been slowing rapidly, a reflection of the weak international markets, deterioration in confidence, and declining real income.
Argentina is an agricultural country but is now suffering from the worst drought in more than 50 years. Government income is being hit by the economic slowdown and downward trend in agricultural prices internationally as well as reduced export revenues.
The pesos continues to weaken and has depreciated 13% since September of last year despite central bank intervention to slow the decline. The government’s international debt has been in default since 2001 and now they plan to use its international reserves to repay the Paris Club1. There is US$30 billion in debt to private creditors that remains in default.
Despite the gloomy economic outlook for Argentina, Dr. Mobius did manage to uncover some potential bright spots. He wrote:
During our trip, we visited one of the country’s major telephone companies. The telecommunications sector has proven to be defensive in a negative economic environment. While in periods of economic expansion, telecommunications have grown two and a half times faster than GDP growth in recent years, the company has historically been able to grow moderately in periods of economic downturns.
Buenos Aires, Argentina
Banks, too, may warrant a look by investors. From the piece:
In the banking sector, our visit to one of Argentina’s largest private banks indicated that most banks reported solid operations in 2008…
The bank believes that lending rates will remain high at the 17% level compared to the 19% experienced in 2008. It also expects margins to be maintained. The current spread is 7.1%. The bank is projecting system loan and deposits to grow 10% year-on-year in nominal terms, below the level of inflation. The level of loans for the bank is expected to remain the same in 2009 as the demand for loans from individuals has slowed dramatically. Loans expanded 10% year-on-year during 2008. Credit card loans grew 54% year-on-year in 2008. In this segment, the bank expects to face a 3% non-performing loan ratio.
Mobius concluded:
Ending our visit to Argentina, we concluded that although the political and economic environment was not good, there were a number of companies that may be able to surmount those difficulties and actually prosper because of these problems by increasing market share.
Source:
“Mark Mobius: A postcard from Argentina”
Mark Mobius
Citywire (UK), July 10, 2009
