Another Wall Street giant comes out to recommend investing in Argentine bonds

The rally of the Argentine debt in recent weeks and the signals that the Government has given They seem to excite international investment banks, which in recent weeks have come out to recommend that their clients include Argentina in their portfolios again. This time, the JP Morgan changed its vision of the country, suggested increasing exposure to its bonds and warned that There is a “window of opportunity” for Javier Milei to lift the trap “in the next two quarters.”

The recommendation of the US bank comes days after other international financial entities expressed their change of vision regarding Argentina. In his report titled “Argentina: Damn torpedoes, at full speed”, The Wall Street giant highlighted that markets reacted positively to the Milei administration’s stabilization efforts. As they explained, “Bond prices rose almost 16 points to settle at multi-year highs with rate differentials ( spreads) compressing to more than 600 basis points so far this year.

The entity recognized that although had “a constructive vision” about Argentina, had decided to stay away of any investment recommendation, because I had doubts about Milei’s handling of the political agenda and about everything they consider “The most critical thing” within the economic program is “the elimination of capital controls and exchange rate unification.” But now, the bank says it shows more optimistic, after the signals given by the Government to clear up doubts about the payment of the 2025 maturities.

“Now we are more willing to accept “bullish scenarios for the implementation of these policies amid a resilient payment capacity at least until 2025”the report noted and detailed: “This is reinforced by a context defined by a more benign global outlook for risk assets. and a still solid public support for Milei one year into his term.

In that sense, JP Morgan told its investors that “Argentina can take advantage of the window of opportunity represented by the next two quarters to reunify the exchange market and lift capital controls.””. And he stressed that moving towards the exit from the stocks is “would be the key catalyst for the other remaining pieces to result in a successful fit.” They even stressed that if the Government finally decides to delay this election until after the midterm elections in October 2025, the country has alternatives to avoid “a credit event” during the next year.

For JP Morgan, The Argentine debt rally, which has risen more than 70% so far this year, “is justified”. “Overall performance in recent months, along with the administration’s stance on the country’s imbalances, should continue to support valuations. We certainly maintain the view that the nature and sequence of the political path forward carry risks.” However, despite the rise in prices, the bank affirms that it sees an opportunity for growth for sovereign bonds.

JP Morgan analysts now “see it” above all because of the Government’s insistence on maintaining the “zero deficit.” “The improvement in the quality of adjustment, together with credible political commitment and the ability to protect the fiscal order from political pressures, has led us to revise our base case towards a zero fiscal deficit in 2024,” the report said.

“Looking ahead to next year, the consolidation structure should be supported by the revenue side of the balance sheet, given the limited room to reduce expenses further. This idea underscores the importance of the administration’s key policy win at the legislative level with The “omnibus” law and the fiscal package not only demonstrated the government’s ability to navigate a challenging political landscape, but also lays the foundation for the new sources of revenue necessary to sustain the fiscal anchor in 2025,” the work stressed.

All in all, the bank considers that Argentina still faces important challenges for the coming months, with the Central Bank’s reserves at the center. “We believe that the unification of the foreign exchange market and the lifting of capital controls are essential to build a sustained path of net reserve accumulation (which has been stagnant on average in recent months),” the report noted, which highlighted that the The Government has made the recovery of net reserves a necessary condition to advance exchange rate liberalization.