Autonomy founder bets on Argentina recovery
Nation seen as one of best trades for 2019 by one of this year’s top-performing hedge funds
One of the top-performing hedge funds of 2018 is betting that battered Argentina could surprise investors and provide one of the standout trades of the coming years.
Robert Gibbins, founder and chief investment officer of Autonomy, which runs about $5bn in assets, believes an International Monetary Fund bailout and efforts by the government to turn round the economy can help drive a huge recovery in the country’s markets.
“In 15 years I think Argentina is going to be a normal country. That’s a huge call,” he said in an interview with the Financial Times.
Argentina has been a terrible bet for foreign investors in 2018. The peso has more than halved against the dollar this year, with annual inflation running at close to 50 per cent. While the stock market is up this year in nominal terms, the currency’s weakness means the MSCI Argentina is down 47.6 per cent.
That is despite efforts by centre-right president Mauricio Macri, who came to power in December 2015, to end Argentina’s isolationism after its 2001 financial crash.
However, there have been more reasons for hope of late. The IMF approved a $50bn loan in June. In September, it added an extra $7.1bn and said it would allow Argentina to access more cash up front. That, and an ambitious 2019 budget that targets a fiscal balance, has helped stabilise the peso, which is roughly flat since the end of August.
“I think we’ve certainly got a new monetary framework which should help with getting inflation falling more rapidly,” said Mr Gibbins. “A lot of the pain has been taken. Going into next year, we’re looking at a recovery in credit, a recovery in real wages, inflation falling, a crop recovery.”
“That is, I think, going to surprise market players,” he added. “People have been so burnt [in the past] it’s difficult for them to look through it.”
“Next year it’s going to be one of the few places where there’s going to be a very interesting story,” he said. “I’m getting the sense that people understand Macri has been left a mess and is cleaning it up.”
He added he expects a “capital markets rerating” that will see inflation, interest rates and fiscal and regulatory policies become more normal, in turn benefiting wealth and economic growth rates.
“They’ve got a new monetary framework which is going to be extraordinarily important in terms of getting inflation falling, I think quite rapidly in fact, and getting its fiscal house in order,” he added.
Mr Gibbins’s fund has been one of the standout performers of a lacklustre hedge fund sector this year, gaining 15.7 per cent to the end of November. Recent gains have come from bets on Brazilian debt and on long-term US rates, according to a letter sent to investors last month.
Autonomy’s strategy since it launched in 2003 is to take concentrated positions in a handful of heavily researched, global macro positions, and Argentina is one of its top ideas at the moment.
Another is climate change, which Mr Gibbins said is increasingly a major factor in investments. “We are already seeing the impacts, whether it’s the drought in South Africa which has a macro impact, or the drought in Brazil a few years ago, which has a huge macro impact, whether it’s the hurricanes we’re seeing in the Caribbean, which is having a huge macro impact,” he added. “We’re already seeing this, it’s just people aren’t linking it in. When we’re doing our work, this is clearly a factor that needs to be taken into serious consideration.”
Many of the most commonly used models to project climate change are underestimating the impact of what is already happening with regard to the environment, he said. In areas where insurance is becoming too expensive to offer, federal governments may have to step in to assist in the case of major natural disasters, he added.
“This now has to be a deep part of any investment process and when I talk to people, they say ‘yeah, yeah, yeah, but in 30 years…’,” he said. “But what we’re seeing, unfortunately, is that this stuff is happening now, and it’s not just [utility] PG&E getting smoked in California on the back of the wildfires.”