Saturday, November 21, 2015 Merval breaks record ahead of vote

Saturday, November 21, 2015

Merval breaks record ahead of vote

Merval stock index breaks record while ‘blue’ dollar plunges amid speculation for Sunday

Local markets rallied yesterday on the last business day before the presidential runoff, expecting a more pro-market stance from the winner of tomorrow’s election.

The Merval benchmark stock index rose 2.9 percent and broke the 14,000-point mark for the first time, closing the week at 14,173 points. The index accumulates a 7.5-percent increase over the past seven business days and has risen 25.11 percent since the first round of the presidential elections on October 25.

“The market is waiting for what the next government’s economic guidelines will be, particularly regarding the exchange rate. We’re facing a period of high speculation,” a trader said.

While both coincide there need to be changes to the economy, Victory Front (FpV) candidate Daniel Scioli and Let’s Change (Cambiemos) contender Mauricio Macri have locked horns on the pace and depth of reforms to lift capital controls, with Macri seeking much swifter changes to open up the economy. Scioli has warned his contender’s policies would lead to an abrupt devaluation that would plunge domestic demand.

Macri has vowed to lift foreign currency restrictions from day one, allowing citizens to buy foreign currency without any controls. He and his economic advisers have hinted on an exchange rate between 14 pesos and 16 pesos to the dollar, while Scioli said the exchange rate would remain at 10 pesos to the dollar in January.

A total of 584 million pesos were traded on the Merval yesterday and companies in the financial and energy sectors saw the biggest gains, increasing as much as six percent. Banco Francés rose 6.10 percent, followed by Pampa Energía (5.12 percent) and Banco Macro (4.63 percent). Shares of Caputo, a construction firm owned by Nicolás Caputo, a businessmen who is close to Macri, rose 25.1 percent, accumulating a 250-percent increase since the October general election.

Shares of Argentine companies trading in Wall Street followed the same trend, with Pampa Energía rising as much as 7.3 percent. Meanwhile, Transporadora de Gas del Sur rose 7.2 percent, followed by Banco Macro (6.5 percent), Banco Francés (5.7 percent) and Grupo Financiero Galicia (4.6 percent).

Joint market expectations

Investor optimism that a Macri administration would implement a single foreign currency market led the “blue” or illegal dollar to continue its declining trend, dropping 13 cents yesterday and ending the week at 15.07.

The illegal exchange rate accumulated a two-cent increase over the last seven business days, having dropped 21 cents on Thursday after a 36-cent increase from Monday to Wednesday. The gap with the official exchange rate dropped to 55.8 percent as the peso devalued half a cent to 9.68 pesos to the dollar.

The Central Bank sold US$110 million to avoid a larger devaluation, accumulating US$1.8 billion in sales so far this month. Foreign-currency reserves dropped US$43 million and closed at US$25.833 billion, having already decreased US$600 million so far this month. Amid a shortage of dollars, the monetary authority has cut back the foreign currency quota for vehicle makers.

“Central Bank sales have been on the rise and exceeded the amount sold last month yesterday, when there are still six business days to go. That means the monetary authority is handing out its foreign currency reserves to maintain the exchange rate policy,” a trader said.

A total US$20.8 million were sold in the dollar for savings scheme through 37,713 transactions, the highest figure of the week. So far this month, US$630 have been sold, only US$73 million away from the record reached in October and largely exceeding the US$403 million sold in the same month last year. Since the scheme was implemented in January last year, US$9.1 billion have already been sold through 14,345 transactions.

Herald with online media