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November 14, 2022
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Wall Street turns its back on Argentina: giant fund disarms its position after losing millions


The Bloomberg agency published the news that the investment fund, Franklin Templeton dumped his entire Argentine position after losing millions of dollars.

Six years after making a multi-million dollar bet on the revival of Argentina, Michael Hasenstab, Franklin Templeton’s portfolio manager, seems ready to finally abandon the investment that has caused him to lose a large amount of money. In this way, would be concluding a black chapter for the famous fund manager known for his bets on emerging markets.

disarming positions

The company sold more than 25 billion Argentine pesos ($156 million) in local bonds in the third quarter, according to records.

Since then, it has continued to pay off Argentine debt, according to people with direct knowledge of the matter who told the Bloomberg agency and who did not want to give details about the volume of sales. Market participants say last month’s surge in trading volume, especially in inflation-linked bonds held by Franklin Templeton, indicates a major drawdown.

The exodus ends six years of brutal losses for Templeton, estimated at billions of dollars.and marks the departure of one of the most important financial supports for Argentina in the last half decade, a period in which the nation faced a default of US$65,000 million and a failed turn towards market-friendly reforms.

In total, Franklin Templeton’s stake, which once exceeded US$5 billion, has been reduced to around US$250 million.not including sales made in October or November, according to data compiled by Bloomberg.

“The bet was horrible and, on the one hand, Franklin Templeton can be blamed for making it because similar bets in Argentina have always ended badly,” said Diego Ferro, founder of M2M Capital in New York.

“At the same time, people in government were saying all the right things, they were credible at the time, and they made a lot of promises,” adding that “of course, it all looks better in hindsight.”

Hasenstab did not respond to numerous requests for comment, while Stacey Coleman, a spokeswoman for San Mateo, California-based Franklin Templeton, declined to comment on the company’s investments in Argentina or its overall investment strategy.

Hasenstab rose to fame more than a decade ago after making huge, successful bets in troubled countries like Ireland and Hungary, that generated billions in returns for investors.

But that same strategy proved disastrous in Argentina.

The celebrated Templeton strategist invested heavily in the country’s bonds at the start of former President Mauricio Macri’s rise to power, betting the South American country was poised to lead a rally among developing nations under his market-friendly blueprint.

Hasenstab was initially so optimistic about Argentina’s recovery that in mid-2016 the fund manager decided to buy some $5 billion of fixed-rate peso bonds.convinced that inflation would quickly be cut in half, according to a person familiar with the matter.

The gamble was so big that Argentine authorities at first didn’t believe Hasenstab’s envoys were serious about the purchase, said the person, who asked not to be identified because the discussions were private.

When Franklin Templeton bought the bonds in late 2016, he paid close to face value.

In recent months, as he continued to sell what remains of his investment, some have traded below 30 cents, according to Bloomberg data, while the peso has weakened more than 90% in that time.

losing bet

The Hasenstab’s bet took a turn in early 2018, when persistent inflation, drought and the global trade war damaged investor confidence.sparking months of currency volatility and market declines that forced Macri to turn to the International Monetary Fund to negotiate a record $56 billion bailout.

The next year, Macri’s shocking defeat in the primaries sparked a massive sell-off that wiped out nearly $2 billion of Franklin Templeton’s investment in a single day.

Days later, the president suspended payment on the nation’s local debt and reinstated capital controls. This, along with the country’s decision to restructure its international bonds, hit the company and other large creditors, even as the government offered to buy back and swap local bonds to help mitigate the impact.

Hasenstab has been reducing its position in Argentina since 2020, according to records, around the same time that Argentina came out of its ninth default.

Since then, the leftist government of President Alberto Fernández has applied patchwork economic policies to try to reduce inflation and bring the economy out of its pandemic-induced stagnation.

These efforts have been in vain, as inflation is close to triple digits, the country’s international reserves are near their lowest level in six years, and draconian capital controls continue to limit international investment.

Argentine Whale

Hasenstab was such a big player that the company’s exit could complicate Argentina’s ability to refinance large debt maturities scheduled for next year, squeezing the country’s small local market.

“We are seeing a more saturated local market. There are few inflows to bonds in pesos,” said Carolina Gialdi, head of sales and operations in international markets at Max Capital in Buenos Aires.

Even as Argentines are expected to return to a more market-friendly regime when they go to the polls in less than a year, Franklin Templeton has given little sign of being willing to give the country a second chance.

Last month, Fitch Ratings downgraded the nation’s credit rating one notch to “CCC-,” citing the country’s lower debt-paying capacity.

“The country is once again in a situation of stagnant growth and high inflation,” said Jared Lou, manager of emerging market debt portfolios at William Blair Investment Management.

“Although many expect a regime change in next year’s elections, it is unclear how many dollars will be left in the central bank when a new government takes power, raising new concerns about Argentina’s ability to service its debts.”

The Chronicler-RIPE

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