The International Monetary Fund is the Eye of Sauron over Argentina, as feared, hated and despised throughout all the land. It tracks every move made in the Casa Rosada in Buenos Aires. Next year is make or break for this debt-wracked, crisis-prone nation.
Either foreign investors refuse to believe that Cristina Kirchner (or someone like her) returns to power in next year’s election, or President Mauricio Macri pulls off the equivalent of a World Cup upset and delivers the greatest IMF program Argentina has ever seen.
The equity market is not the way to guage investor sentiment on Argentina. The Global X MSCI Argentina (ARGT) exchange traded fund is down 32.8% this year, two times worse than the MSCI Emerging Markets Index.
The best way, if not the only way, is through bonds and the peso. The peso started the year off at 18 to the dollar. It hit the 20s when rumors were swirling in May about a pending IMF arrangement, and the central bank made a number of missteps on inflation, forcing interest rates over 40%. (They are now at 60%!)
The market panicked: Argentina was broke for the umpteenth time. Then when the negotiations began and it became more clear just how close to the brink Argentina was, the peso went to 41.28 on Sept. 28, its weakest level in over five years. The good news is, it’s now under 40. Forty pesos is a psychological hair trigger for the peso. Over that, and investors are basically giving Macri a no-confidence vote.