The Latin Rollercoaster

An unexpected country is topping this year's list of the best performing equity markets world-wide: Argentina. The Buenos Aires Marvel Index is currently at 119% return year to date, and hit 126% last week. The numbers are astonishing considering that Argentina defaulted on its debt just a few months ago and is still on an ongoing recession. National inflation is expected to reach 40% this year, one of the highest rates globally. The economy is projected to contract by 2.1%.

Then who are the matadors leading this nonsensical equity bull towards all-time highs? The usual suspects: risk-loving investors. Some opportunistic fund managers believe that Argentina has seen the worst of it. They believe the South American economy can only go up from here and decided to put their money where their mouth is. After all, Argentina did not exactly default because of inability to pay back its debt, but by choice. The Argentinian government deemed a default on its debt to be the most economically sensible choice based on their current financial obligations. It seems that volunteering to declare bankruptcy in a controlled environment has made the equity-land fertile for investors to pour money in. Well-known names such as George Soros, Daniel Loeb, Richard Perry, Carlos Slim, Kyle Bass, and David Martinez have placed huge bets on an Argentine recovery. Particularly Loeb, with his hedge fund "Third Point", is known to be very active with discounted assets in distressed countries during recent years. After all, this opportunistic mentality has paid him off well. Loeb claimed half a billion dollar profit from his billion dollar position on the heavily discounted at the time Greek bonds. Perhaps, he will manage to emulate his previous success in another luminous country this time.

Argentina suffers from rising unemployment, a crashing peso, and a declining price in their main exports such as soya. The deep infrastructural problems in the government are still there, and the weakly enforced regulations are being constantly challenged. While the obstacles towards recovery are still swamping the Latin country, receiving a sizeable direct foreign investment is certainly helpful. What is especially beneficial from those big name investments, however, is the confidence they convey to the markets that a better future is ahead of Argentina.