Can Argentina Be Fixed?
I started in the investment newsletter biz in 1998. That was right on the heels of the currency crisis that swept through the Asian Tiger economies. Thailand had to unpeg the baht from the U.S. dollar, and the dominos started to fall. Malaysia’s ringgit, the Indonesian rupiah and eventually South Korea’s won — values were cut in half.
Yeah, emerging economies were actually interesting back then. The first stock I ever “discovered” was the leading South Korean telecom company, SK Telecom. The ticker was SKT and it was a 150% winner.
It didn’t take long for internet stocks to push emerging markets to the back burner.
So while I remember when Argentina defaulted on $95 billion in debt in May 2001, I don’t remember it being a particularly big deal. More like “well, there goes Argentina, again…”
Then in quick succession, we got 9/11, Desert Storm and Afghanistan, the Great Financial Crisis — emerging markets never really came back.
China had a couple years in the sun after the GFC. Still, I swore off the rest of the world to focus on U.S. stocks in 2014 because it was clear to me there was only one economy that could deliver the winning combination of growth and safety.
Russia’s invasion of Ukraine, the rolling disaster that is China’s economy, war in the Middle East, perpetually slow growth in Europe — U.S. stocks are the only game in town…
Mostly…
A Few Winners
I don’t mean to say there aren’t good foreign stocks. Denmark’s Novo Nordisk’s (NYSE: NVO) weight loss drugs are blockbusters. The Netherland’s ASML’s (NASDAQ: ASML) semiconductor lithography machines are engineering marvels. Taiwan Semiconductor (NYSE: TSM) is in beast mode thanks to AI…
Uruguay’s Mercado Libre (NASDAQ: MELI) is a dominant force. I’ve got a soft spot for Brazilian digital banking stocks StoneCo (NASDAQ: STNE) and PagSeguro (NASDAQ: PAGS).
Mexico is a major beneficiary of the decoupling of supply chains out of China. That’s why the iShares Mexico ETF is at all-time highs (please ignore the unfortunate ticker symbol):
You know what other country ETF has been performing well? Argentina…
And the reason Argentina stocks have been moving is newly elected president Javier Milei. You can see the big spike in volume and jump in price on the chart – that’s the day Javier Milei won Argentina’s presidential election.
The market is sending a message: Javier Milei might actually be able to end Peron era policies that have crippled the country for 80 years. Milei might fix Argentina.
Milei caught my attention when he told the Davos bros at the annual elitist meet-up in Switzerland:
“The case of Argentina is an empirical demonstration that — no matter how rich you may be, or how much you may have in terms of natural resources… or how many bars of gold you may have in the central bank — if measures are adopted that hinder the free function of markets, free competition, free price systems, if you hinder trade, if you attack private property, the only possible fate is poverty.”
I’m gonna save the implications that his speech carries for the U.S. and the E.U. for another time. This article is about Argentina…
Oil Will be the First
There’s no reason you should know that Argentina is home to the Vaca Muerta, the second largest shale oil formation in the world. Because the Argentine government nationalized the country’s biggest oil producer, YPF (NYSE: YPF) in 2012 (just as fracking technology was getting really efficient) and mismanaged the development so badly that YPF produces just 100,000 barrels of oil a day.
YPF is currently selling off $800 million of legacy oil assets so it has cash to truly develop oil production in the Vaca Muerta (please excuse the unfortunate translation: dead cow).
YPF stock has been cooking too:
In addition to ending gasoline subsidies in Argentina and freeing up $800 million in cash to increase production, Javier Milei also wants to privatize government-run companies like YPF.
Now I know, buying oil stocks these days isn’t the most popular thing to do. Tell people that not only are you buying an oil stock, but an Argentine oil stock, well, you could get some funny looks.
But tell ‘em the stock trades with a forward P/E of 5 and see if that doesn’t change the looks you get.
Here’s to the money we will make,
Briton Ryle
Chief Investment Strategist
X/Twitter: https://twitter.com/BritonRyle
