Michael Hasenstab, a prominent fund manager at Franklin Templeton, have invested about $4.6bn in Argentine debt, betting that the government led by Mauricio Macri will manage to reform one of Latin America’s perennial basket cases.
Those bets were hammered by Argentina’s worsening crisis this year, which halved the value of the country’s currency against the dollar, sent bond prices tumbling, pushed the government into a $50bn IMF programme and caused the deepest economic recession since 2008.
From Dr Hasenstab’s perspective, the severity of the sell-off was overdone, exacerbated by the broader emerging markets turmoil triggered by Turkey’s ham-fisted response to its own crisis, a domestic population scarred by the country’s many past crises — which sent them flocking to convert pesos into dollars — and foreign investors aggressively betting against and exaggerating Argentina’s vulnerabilities.
“There was a huge speculative attack launched on Argentina, and there was a lot of misinformation spread by people that were shorting the currency,” he said. “Speculative attacks in August, when no one is around, can quickly get legs. And they were vulnerable because it takes time to rebuild confidence domestically.”
All told, “it was a perfect little storm” for Argentina, said Dr Hasenstab, the chief investment officer of Franklin Templeton’s global macro team.
However, the IMF’s willingness to overhaul and possibly even increase the size of its record-breaking aid package, the government’s promise to tighten its belt and the central bank’s move to crank up interest rates to a painful 60 per cent have stabilised Argentina’s markets, which are beginning to recover.
The Argentine currency has climbed from a record low of about 40 pesos per dollar to 37.22, the Merval stock market has bounced by 37 per cent from its late-August low, and Argentine bonds have recovered some of their losses, sending yields lower again after the summer spike.
The IMF is also expected to finalise a revised programme for Argentina soon, perhaps as early as this week, which will probably lead to a front-loading of money disbursements and possibly an increase in the size of the hefty programme.
Dr Hasenstab is positive on Argentina as he believed that “What Argentina has done has exemplified orthodox, sensible policies, which isn’t common in the world these days.”
Financial Times, Robin Wigglesworth, 2018-09-24, “Argentina’s crisis receding, says bullish Hasenstab”