Emerging Markets

Argentina shakes off the economic blues as a Macri trade takes shape

Argentina's President Mauricio Macri waves after being sworn-in as president at Casa Rosada Presidential Palace in Buenos Aires, Argentina, December 10, 2015.
Marcos Brindicci | Reuters

Slowly but surely, Argentina is emerging from its deep economic slump and shaking off the effects of a historic sovereign debt default that earned it a reputation as an investment pariah.

As President Mauricio Macri wraps up his first full year in office this month, the Latin-American economy is projected to pull itself out of an economic tailspin. This week, the Organization for Economic Cooperation and Development estimated Argentina will grow by nearly 3 percent next year, and 3.4 percent in 2018, after contracting by an estimated 1.7 percent this year. The International Monetary Fund estimated Argentina will grow at least 3 percent through 2019.

Yet Macri's efforts to reassure investors are already paying dividends. New initiatives include lifting currency and trade restrictions, reaching an agreement with holdouts from its massive 2001 debt default and other reforms are restoring confidence. In April, the country made a triumphant return to international debt markets by floating more than 16 billion in new bonds.

So is Argentina, once labeled a pariah state, now a respectable bet again?

"Yes," declared Cullen Thompson, co-founder and chief investment officer at Bienville Capital Management. The boutique New York City–based firm was one of the first outside investment firms to provide capital to Argentina.

"The economy is set to improve and inflation should begin to decline. The policy and business climate is improving as Macri is re-establishing the rules of the game," he told CNBC recently. "Also, equities should benefit as profitability improves."

By moving to more orthodox policies, Macri is signaling a significant shift from his predecessor, Cristina Fernandez de Kirchner, Thompson said. "Argentina will be much [friendlier] to investors than it was under the Kirchners."


Buenos Aires: Plaza de Mayo
David Almeida | Flickr

To drive home the message, the government has staged a number of investor roadshows to underscore how the new sheriff in town is cleaning things up.

"We are committed to illustrating to both the world and local and international companies that the Argentina of today is committed to transparency and clear and foreseeable rules," Juan Procaccini, president of the Argentina Investment & Trade Promotion Agency, told CNBC recently.

"We are targeting investors from diverse spheres. We do not feel as though Argentina offers investment for a sole group: We have a diverse portfolio of investments that offer opportunity for any group looking to invest in the country," he added.

Energy, along with mining, is a key sector for Argentina, Procaccini said, with renewables another budding option. The country's energy and mining properties are worth approximately $75 billion, and along with Chile and Bolivia holds the lion's share of the world's lithium reserves.



Analysts say that short-term Argentine portfolio investment will likely be volatile over the next 12 months because of expectations of U.S. interest rate hikes and political uncertainty.

However, the longer-term picture is more encouraging, explained Jing Sima-Friedman, senior economist with The Conference Board in New York. "Argentina's investment climate is improving and encouraging, due to the country's natural resources and demographics," he said.

"Argentina's demographics are still favorable. Its working age population is expected to continue growing and providing ample labor supply in the next decade. Favorable demographics will also provide growing consumer markets and demand," Sima added.

During its more turbulent days, Argentina was deemed a bargain for many market players — but appears to be on its way to becoming a premium investment, said Bienville's Thompson.

He cited financial services, energy, utilities and real estate among the sectors positioned to benefit the most, and said the best way to tap Argentina's market was via the American Depositary Receipts of the company's publicly traded companies.