Buenos Aires — For analysts at US-based hedge fund Praetorian Capital, “Argentina has bottomed out” and, for that very reason, they are optimistic about the country’s future, and not only has it bought shares in local companies, but it has also revealed which ones, and why they believe that “this time things may be different” for Argentina.
The hedge fund founded by US investor Harris Kupperman describes Argentine financial assets as “unusual and amazingly cheap”, and explained that the reason for this is none other than because “the country is bankrupt, the currency is worthless and they owe money to all the world’s acronyms”, referring to the MF and the World Bank.
The Argentine economy, Praetorian Capital says, “is in ruins”.
“The problem is simple: during the last century, Argentines have elected some crazy people to run their country. That is the problem. That’s the whole problem. The government is the problem. Fix the government and you fix the country.”
Harris Kupperman, founder of Praetorian Capital
But, for the analysts of the firm, which has some $180 million under management, “fortunately, most of it is fixable”. They noted that there is Western infrastructure everywhere, roads are paved and things more or less work. “The problem is simple: during the last century, Argentines have elected some crazy people to run their country. That is the problem. That’s the whole problem. The government is the problem. Fix the government and you fix the country,” Kupperman said.
Given that idea, and taking into account the proximity of the October presidential elections, in Praetorian Capital analysts are focusing on the polls only to come to the conclusion that “the socialists [referring to the current ruling coalition] are no longer popular”.
“They put the car in a ditch, poured fuel on it, called the IMF and lit a match. People are willing to try something new,” the analysts said.
Praetorian Capital analysts recalled that “in 2015, [former president] Mauricio Macri did surprisingly well in the first round of the elections and the market rose spectacularly”. That is why this year they aim to replicate that trend.
“The trade is easy to understand, Argentina lurches to the right economically, tries to fix the economy, and assets go up. Is it really that simple? We think so,” the analysts said, before pointing out that “the only difference this time is that we are starting from about half the price level”.
After recalling the reasons why Macri’s government could not hold on to power, Praetorian Capital projects that “this time things may be different” since “the country has hit rock bottom and polls show that people favor candidates with a more extreme economic policy”.
This election, they said, is not about what should be done, but about how fast it should be done.
And after pointing out the many economic challenges that still face Argentina, the firm acknowledged that it has focused more on prosaic metrics such as market capitalization relative to hard asset value. “We have simply ignored the rest,” they said.
Given this clarification, they revealed that they put together a fairly broad basket, as they aim to “play the trend”, rather than betting on any individual company. “This is our basket in alphabetical order: BMA, CEPU, CRESY, GGAL, IRS, LOMA, PAM, YPF. We do not own VIST, but it is also a viable and liquid candidate,” the analysts said.
“As you will note, we basically buy all ADRs with liquidity. We have underweighted banks, as they are black boxes of depreciating pesos. We have also avoided the ARGT ETF, as it has 21.5% MELI and is full of Chilean and Colombian assets,” they clarified.
Praetorian Capital’s largest investment in Argentina is in oil and gas giant YPF.
“It owns half of Vaca Muerta, the second-largest shale asset in the world,” according to the fund manager.
“If the election goes the way we think it will, we think capital will flood into Argentina, and that access to capital will dramatically accelerate the ability to move the project forward using modern technology. In addition, Javier Milei has made it clear that he will privatize the government’s 51% stake to pay down the debt, which should help to further revalue the asset. We liked this idea so much that we even swapped part of our BNO for YPF last week, and you know how much we like oil here,” the analysts said.
“We are playing this operation as a basket, as this is still Argentina, and bad things can happen to good companies”.
