The long-term outlook is still not clear due to the slump in economic activity in recent months and uncertain recovery. Companies with a high percentage of dollar denominated revenues, lower operating exposure to the domestic market and low debt levels would act as a hedge in the current scenario, while in case of a better than expected recovery, could outperform the Merval index.
The agreement regarding the sovereign debt restructuring would be the first step in considering a medium-term economic recovery, being the main medium-term driver for Argentine stocks. Most domestic stocks are currently discounting a very negative scenario, as their current valuation lies between 30% of their maximum values in early 2018. However, last week’s Presidential decree, in which communication sector companies are declared a public utility, poses uncertainty regarding increased government intervention in the economy and particularly in these companies.
Bolsas y Mercados Argentinos (BYMA) would be an attractive stock due to its almost entirely USD denominated investment portfolio through Caja de Valores and the strong growth in trading volume. We favor defensive stocks such as Aluar (ALUA) and Ternium Argentina (TXAR), also migrating to companies with limited exposure to Argentina, such as MercadoLibre (MELI) and Globant (GLOB), as the quarantine due to the coronavirus spread boosts online payment revenues through its platform Mercado Pago. In addition, as the Government is planning to restart the subsidized mortgage program (Procrear), thus improving the outlook for the construction sector, Loma Negra (LOMA) would be attractive. We suggest reducing exposure to Telecom (TEO) as the new Government regulation would be very negative for the company’s business.
Considering a longer time horizon and a more aggressive risk profile, banks’ valuations are offering attractive entry points, influenced by a possible rebound in domestic economic activity in mind. In this context, Grupo Galicia (GGAL), due to its higher relative volume of deposits and loans, would have the most attractive valuation, while Banco Macro (BMA), due to itsgeographically diversified activity, could be less affected by restrictive policies in the Buenos Aires’ Metropolitan Area due to the Covid-19 pandemic.