The Hedge-Fund Trade of the Year: Betting on Argentina’s Chain-Saw-Wielding President
Investors have piled into Argentine assets this year, betting Javier Milei can revitalize the beleaguered South American economy
The hot new trade on Wall Street has nothing to do with crypto, electric vehicles or artificial intelligence. It’s Argentina—the country infamous among investors for serial debt defaults.
Hedge funds and other money managers have piled into Argentine markets this year, betting President Javier Milei can overhaul a long-suffering economy. The trade has paid off handsomely, with Buenos Aires stocks on pace to finish 2024 as the world’s best performers and government bond prices soaring. An exchange-traded fund tracking the MSCI Argentina index is up more than 60%.
Milei won the presidency by vowing drastic spending cuts, often waving a chain saw above his head while campaigning to reinforce the point. The libertarian political outsider, who has been praised by President-elect Donald Trump, took office last December.
He has followed through by stopping public works, cutting fund transfers to provinces and reducing widespread utility subsidies. Milei has also moved to shrink the gap between official and black-market currency rates.
Milei’s shock therapy has caused widespread economic pain, worsening an already high poverty rate. But inflation has slowed dramatically from sky-high levels, and, for the first time in over a decade, Argentina swung to a quarterly fiscal surplus this year. Recent data showed the economy exiting recession, growing at a 3.9% rate as of September compared with the previous quarter.
That has sparked a sea change in investor attitudes toward a country long plagued by problems such as political chaos, runaway prices and government overspending. Argentina has defaulted on sovereign debt nine times since winning independence in 1816, most recently in 2020.
“The nature of this U-turn has been breathtaking,” said Genna Lozovsky, chief investment officer at Sandglass Capital Advisors, a London-based hedge-fund firm. “If the fiscal anchor that Milei has so firmly planted in the ground stays in place, if this disinflation trend continues and if the economy continues to hum along,” bondholders should expect substantial gains, he said.
Argentina’s bonds have already rallied dramatically. One gauge of the nation’s hard-currency debt, the ICE BofA US Dollar Argentina Sovereign Index, has generated a total return of about 90% this year.
Meanwhile, the S&P Merval Index has risen more than 160% this year through Monday, far outpacing stock benchmarks in developed, emerging and frontier markets alike. Adjusting for currency differences, the index is still up more than 100% in U.S. dollar terms. For comparison, the S&P 500 is up 25% over the same period.
Investment firms focused on emerging markets and distressed debt have been notable beneficiaries.
“Argentina was one of our biggest winners this year,” said Aaron Stern, chief investment officer of Converium Capital, a multistrategy hedge-fund firm in Montreal that oversees $500 million. “Generally I don’t like saying ‘this time is different,’ but I think the backdrop globally and domestically is more favorable than it’s been in recent history for Argentina,” he said.
Stern said Converium began buying Argentine sovereign bonds soon after the firm launched in 2021. The bonds were beaten down after a 2020 restructuring. Converium wagered there was little downside, given low prices and with Argentina’s government not on the hook to make near-term debt repayments. On the other hand, the firm figured meaningful gains were possible if the situation in Argentina improved.
At Shiprock, a distressed-and-special-situations hedge-fund firm that oversees nearly $800 million, Argentine debt holdings have helped power the firm’s 34% gain through November of this year, according to a person familiar with the firm’s performance. That includes bets on sovereign, corporate and Buenos Aires’s provincial debt, the person said.
Government interventions in currency markets have made it hard for Argentina to rebuild its foreign-exchange reserves. The country has a multibillion-dollar hard-currency shortfall, raising some investor concerns about its ability to meet obligations to bondholders.
Alessandra Alecci, a debt fund manager who focuses on emerging markets for Carmignac, said the French asset manager still has concerns about the reserve shortfall, which she estimated at about $8 billion in net terms. But for now, she said, “it’s been very difficult to have strong doubts” about Milei’s economic overhaul continuing to work.
To bolster the country’s financial standing, Milei has sought a new loan from the International Monetary Fund, a move that would allow his government to lift the tight currency controls that have strangled business in the country for years.
Some investors are hopeful Milei’s budding relationships with Trump and Tesla’s Elon Musk will help Argentina secure a deal from the Washington-based IMF. A spokeswoman for the IMF said in a news briefing this month that negotiations with Argentina are under way.
Carmignac, the French firm, began placing cautious bets on Argentina last fall as Milei gained momentum in the polls. It now holds a larger position in Argentine sovereign debt, as well as roughly $200 million of Argentine stocks.
The investment company’s portfolio managers say they feel optimistic about Argentina’s economic trajectory—a sentiment reinforced after a small team including co-founder Edouard Carmignac met Milei in Argentina last month.
The team left the meeting very impressed, said Xavier Hovasse, Carmignac’s head of emerging equities. Milei “knows exactly what he wants to do—the direction is very clear for him,” he said.