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Investment trusts exposed to Argentina’s inflation, currency and interest rate problems
Investors owning Latin America and emerging markets funds should check for any exposure to Argentina after the country lifted interest rates to a staggering 40% in a desperate attempt to prop up the peso and gain control over rampant inflation.
Three investment trusts stand out for their notable exposure to Argentina. The country accounts for 16% of BlackRock Frontiers’ (BRFI) net asset value (NAV), including 2.6% of the fund invested in shares of Banco Macro, the nation’s second largest domestically-owned private bank.
Utilico Emerging Markets (UEM) has about 10% of its NAV in the Latin American nation. This is largely through sizeable stakes in financial services company Bolsas Y Mercados Argentinos, and energy industry operators Transportadora de Gas del Sur and Pampa Energia. And Aberdeen Frontier Markets (AFMC) has 9.1% of NAV in Argentina.
WHAT’S GOING ON?
‘Argentina’s problems are entirely self-inflicted,’ says Jan Dehn, head of research at Ashmore Group, who points to the nation’s botched attempt to manage inflation expectations in December.
The underlying reason for the failure to control inflation lies with the fiscal authorities, says Dehn. ‘They have consistently insisted on lavish spending to avoid a recession during the monetary adjustment period.’
The government’s spending spree and hefty interest rates inevitably drew ‘hot money’ from overseas, which is now jumping ship.
Sadly, Argentina’s high fiscal spending ‘failed to stimulate real investment since the large volumes of government debt issuance crowded out the private sector,’ adds Dehn.