Argentina: From Bad To Worse (ARGT, PAM, TX)
Joseph Hogue: More than 300,000 Argentines took to the streets of Buenos Aires recently to protest the administration of President Cristina Fernandez de Kirchner. It was the second major protest in two months against high levels of crime and inflation.
The protests have followed a string of blackouts which the current administration has blamed on hyperinflation and poor infrastructure left a previous government. If investors are a little puzzled by the government’s scapegoating a prior administration, it is because the administration receiving the blame left office in 1989 and little has been done to improve the electrical grid since.
I have been bearish on the country since earlier in the beginning of the year and still think it is too risky for anyone but speculative investors. Any favorable policy reaction, or even an acknowledgement of economic reality by the government could lead to a bounce in share prices, but the longer-term outlook for the country is increasingly negative. The country is still largely locked out of the international debt market due to its 2001 default and inflation continues to exceed 20% per year.
I was more positive on shares of Ternium (NYSE:TX), a steel producer, in my most recent article. The company has benefited from a government push for more residential construction. The shares have increased 15.2% since July and could continue to outperform the general market.
Pampa Energia (NYSE:PAM) is a utility company with installed hydroelectric and thermal generating capacity of 2,217 megawatts. It distributes electricity to approximately 3.6 million residential and commercial customers throughout the country. The shares have lost almost 73% over the last year and pay no dividend. If major failures in distribution continue, shareholders could see further losses to government action.
The Global X FTSE Argentina 20 (NYSEARCA:ARGT) has followed the overall market down with a loss of 30.4% over the last twelve months, making it the standout for losses in the region. The government has yet to propose a plan to address, or even acknowledge, its serious fiscal and economic problems. While this continues, it looks like things may get worse before they get better.
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