Political uncertainty is high in Argentina ahead of the presidential election in October when president Mauricio Macri is set to face a strong challenge from leftist candidates, including former president Cristina Fernandez.
Investor sentiment towards Argentine corporates – such as Telecom Argentina, state energy giant YPF and food group Arcor – tends to be driven by politics rather than fundamentals, says Omotunde Lawal, head of emerging markets corporate debt, at Barings.
“Stepping away from politics, Argentine corporate fundamentals are relatively decent. Argentine corporates have been absent from international capital markets for many years and the balance sheets of a lot of corporates are relatively healthy. Leverage is very low because they functioned without a lot of leverage in their capital structures for years,” she says in this video.
Many Argentine corporates have US dollar or hard currency-denominated revenues but a peso-denominated cost base, Lawal points out. “Some corporates in Argentina would be investment grade rated rather than single B-rated if they were in a different zip code,” she says.
Lawal manages the Barings EM Debt Short Duration and EM Corporate Bond funds.