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Special Report

ESG: The metrics jigsaw


Argentina: Back from the brink

Latin America has given investors a good run for their money over the last year and more, and Argentina has performed well within that region.

At the end of August the IVBC stock market index was up 34% from the start of the year and almost 53% from January 1996.

Less than a decade ago, Argentina was on its back, suffering hyper-inflation rates of up to 4,500% a year. With the benefit of hindsight this was, perhaps, a good thing as today there is political consensus about the need for the fundamental reforms which have been instituted. After coming through the Mexican devaluation of 1994 relatively unscathed, the economy is now growing fast without the threat of inflation.

On a top-down approach the market looks terrific," says Nancy Curtin, emerging markets guru at Barings London. "All the figures have surprised on the upside; the banking system is awash with cash and credit growth is picking up which is always a good harbinger. There has been a dramatic decline in its sovereign risk and it has repaid a lot of its external indebtedness." Veronica Berger Collins, fund manager on the Latin American desk at Foreign & Colonial , agrees. "Argentina has had some of the deepest reforms and best results," she says. In particular she singles out the pension reform based on the Chilean model. A vast pool of savings is being formed - "about $300m a month".

Both voice a similar caveat. Argentina has by far the best prospects, but the stock market won't necessarily reflect that. The reason - the market is narrow and utility based, not really representative of the economy, with the major oil company and telecoms companies making up a large part of the index. "There's less to buy on a bottom-up perspective," says Curtin.

While there are 200-300 investment funds in Argentina itself, foreign investors have only a handful of offshore Argentinian funds to choose from. Unless totally sold on the economy, experts advise exposure via a regional fund."

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