Milley starts shock therapy, international capital is bullish or bearish on Argentina?

I have been following the reforms and changes in Argentina, so I bought a little Argentine ETF fund through my US stock account. Not much, only bought $1000 for the time being. So I went from being an observer to a participant, which was equivalent to actually feeling the reaction of the capital markets to the Argentine reforms.

The full name of this fund is Global X MSCI Argentina ETF, abbreviated as ARGT, which is an MSCI index issued by Global X Inc., which specializes in tracking Argentine ETF products. ETF is the English abbreviation of Exchange Traded Fund, which is called "exchange-traded index fund" in Chinese. Unlike traditional funds, ETFs are not actively managed by fund managers, but passively track an index, replicating the index's performance by buying its constituents.

The index used is the MSCI index, whose full name is Morgan Stanley Capital International. The MSCI index is designed to reflect the performance of global equity markets, including a variety of industry and regional indices, and investors can diversify their portfolios based on this index.

Global X, on the other hand, is an issuer of ETF funds, which is simply a brokerage. ARGT is a product that classifies Argentine securities based on the MSCI Global Investable Markets Index methodology, as well as companies headquartered or listed in Argentina with principal operations in Argentina, and are required to meet certain constituent size and concentration requirements. From the perspective of its holdings, it covers consumer goods, materials, finance and other aspects.

In short, this index fund is able to reflect the overall performance of the Argentine stock market and also represent the fundamentals of the Argentine economy. Therefore, it can provide us with a window to observe the changes made by the international capital market to the Argentine market reform.

ARGT was founded in 2011 and has returned only 5.31% in the past 12 years. Note that this is not an annualized rate of return, but a 12-year comprehensive rate of return, which is only about 0.4% if converted into an adult return. This rate of return is not as high as the deposit rate, which is basically equivalent to no increase, which is also consistent with Argentina's economic performance in the past ten years.

But this fund has performed very well in 2023, gaining 56.21% in one year, and many of the gains have been completed in the second half. In fact, after Milley's election victory on November 19, the market reacted quickly. On November 20, the day after the election results, Argentina was the national Independence Day holiday, and the stock market was closed for a day, but investors in the United States responded with money.

ARGT surged 14.22% on the day, setting a record for the largest single-day gain. Among them, the few Argentine stocks listed on the US stock market were scrambled by global buyers, Fisco Oil rose more than 43%, the highest increase since records began in 1993, and the two pillar banks of Argentina, Banco Macro SA and Grupo Financiero Galicia SA, surged 20% and 17% respectively.

Fisk Petroleum was founded in 1922 as the first state-owned oil company outside the Soviet Union and the first "vertically integrated" state-owned oil company in the world, from oil extraction and refining to the final sales of oil and gas products, all of which were integrated into one large state-owned enterprise. According to Forbes magazine's 2022 statistics, Fisk Oil ranks 1,260th among listed companies in the world. If it can be successfully privatized, then the original shareholders are likely to have huge benefits.

During the election campaign, Milley repeatedly stressed that if elected, he would push for the privatization of Fiskel Oil as soon as possible. It is clear that investors are not afraid of the privatization of this oil company, on the contrary, they are very much looking forward to it. Therefore, investors who smelled the opportunity rushed to buy stocks, causing the stock price to skyrocket.

And on November 21, when Argentina's domestic stock market opened, the broad market index rose 22.84% in one day. Since Milley took office on December 10, the full moon will soon be full, and ARGT has risen by 31.33% in the last month. Although domestic opposition has begun to rise, it is reflected in the international capital market, and funds are still using practical actions to endorse Milley's policies and actions.

For comparison, on August 11, 2019, after Fernandez won the presidential primary, ARGT plummeted, falling nearly 35% in just three trading days. Fernández's main campaign platform included: strengthening government intervention in the economy, imposing foreign exchange controls, limiting foreign speculative capital, adopting a looser monetary policy, expanding social welfare, stimulating domestic demand, and so on. Obviously, this is completely different from Milley's direction of deregulation and embracing the market, and it is still a big government line of heavy regulation and strong intervention.

The flow of funds is the most honest, so to speak, banknotes are more honest than votes. This is not difficult to understand, as the cost of filling out the ballot is not significant, and the results of the election are often not borne by the person directly. The choice of the stock market is different, the whip is directly hit on yourself, and you pay for stocks and funds, and your profits and losses are your own. Only when you are in pain, you know how to cherish, so the flow of funds reflects the true preferences and actions of investors.

This is the true view of international capital on Argentina, and it is not at all what many domestic netizens mistakenly believe that Argentina has chosen a madman to come to power and is leading Argentina to hell. But objectively speaking, Argentina's future is not a smooth road, and the future is not bright.

Since coming to power, Milley has quickly burned three fires, burning nine of the 18 government departments, devaluing the peso by 54 percent, announcing an emergency decree, implementing more than 30 reform packages, kick-starting the privatization of state-owned enterprises, sweeping deregulation in a number of industries, and lifting import restrictions.

These measures were logically problematic and were in keeping with Millet's Austrian school philosophy as well as his original election platform. The problem is that sometimes far water cannot quench the thirst of the near, and it takes time for reform measures to be implemented to take effect, but many people lack enough patience. In particular, those whose interests are damaged in the reform are inevitably opponents of the reform. Even if these measures are right and good for everyone in the long run, they may still oppose them.

At present, Argentina is facing multiple difficulties of high debt, high inflation, low growth and sharp currency depreciation, and the ruling team led by Milley must not only persuade the Congress, but also appease the people, and let Argentina's economy quickly get out of the downturn and enter the upward channel.

Those who oppose Milley are waiting to see the joke, and those who support him are sweating for him. I think Milley can hold it, but it's hard to say to the people who have the votes, and it's hard to say in the Argentine Congress, which has the right of veto. If the Argentine people can't bear it, and Congress and the opposition parties take action with the help of public opinion, Milley's reforms are likely to fall short.

Personally, I support Milley's reforms and hope that Argentina will weather the storm. As long as Milley can hold on, I will be bullish and hold ARGT for the long term. The Pampas, where a great player like Messi was born, deserves a better life and our blessings for Milley and Argentina.

• (This article is the author's personal opinion and does not represent the position of this newspaper)

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Editor-in-charge: Chen Bin