Morgan Stanley buys Argentine stocks as YPF deal lures BlackRock

, Bloomberg


Cristina Fernandez de Kirchner

The tumble in Argentine stocks that sent valuations to an almost four-year low has spurred Morgan Stanley Investment Management and BlackRock Inc. to buy.

Timothy Drinkall, whose Morgan Stanley Frontier Emerging Markets Portfolio rose 26 percent in the past 12 months, said he bought Argentine shares last year after avoiding the country altogether earlier in 2012. By Dec. 31, the nation's equities accounted for a larger percentage of holdings than were in the fund's benchmark index, he said in a Jan. 23 phone interview.

The MSCI Argentina Index of five companies with operations in the South American country has rebounded 16 percent this year following a 39 percent rout in 2012 that was sparked by President Cristina Fernandez de Kirchner's seizure of the nation's largest oil company and restriction of imports and capital flows. Fernandez may ease import curbs this year as she seeks to boost economic growth before mid-term congressional elections in October, according to Drinkall.

"Valuations are at extreme low levels," said Drinkall, whose frontier fund beat 98 percent of peers tracked by Bloomberg during the past 12 months. "Sometimes for a market to adjust upwards, things just have to be less bad."

The MSCI Argentina gauge, which tracks the U.S.-listed shares of two banks, two oil producers and the nation's largest telecommunications company, was valued at 1.1 times net assets on Jan. 30, about 30 percent below its four-year average and less than the multiple of 1.5 for the MSCI Frontier Markets Index, according to data compiled by Bloomberg. The Argentina measure sank to 0.67 times on Nov. 16, the lowest since March 2009, before climbing as stocks rebounded.

Currency Controls

Argentine shares had a 3.5 percent weighting in the MSCI frontier index as of Jan. 30, according to data compiled by Bloomberg.

The BlackRock Frontiers Investment Trust Plc, which had about $132 million of assets as of Dec. 31, increased its position in Argentine stocks to 3.9 percent of total holdings from 2.4 percent in July, the fund said in a Jan. 16 statement. Sam Vecht, who manages the trust, said by phone on Jan. 18 he's turning "more positive" on Argentina after valuations fell.

Government controls on imports and currency markets have weakened Argentina's economy and may be contributing to Fernandez's declining popularity, said Drinkall, who helps oversee about $300 million in New York. The president has banned the purchase of dollars for savings or real estate investments and forced insurers to repatriate their money held abroad. The peso plunged about 40 percent in the past 12 months in an unregulated foreign-exchange market that Argentines use to acquire dollars.

Approval Rating

Fernandez's approval rating plummeted to 29.8 percent in December from 64.1 percent when she was re-elected in October 2011, according to a poll by Buenos Aires-based Management & Fit. About 2 million demonstrators protested against inflation, crime and currency controls in cities across the country on Nov. 8.

"Her ability to implement some of the negative policies has been curtailed" by her waning popularity, said Drinkall, who traveled to Argentina in December.

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