The Limited Times

Now you can see non-English news...

According to Citi, "Milei is going to have a hard time getting funds, before they are going to ask him to show proof of the reforms"

2023-12-07T17:57:33.835Z

Highlights: Argentina's new government will be "the story" of the region in 2024, says Citi. They expect adjustment measures and a devaluation that could take the dollar up to $1,000. The harshest measures are the fiscal adjustment of 5% of GDP, a spending cut unprecedented in recent history, and speculation of a "great devaluation" Citi Global Wealth's report notes that markets will focus on faster growth in the second half of 2024 and 2025, which will be reflected in corporate earnings.


The bank expects a "major devaluation," with the official dollar at $1 billion.


Javier Milei's shock plan aroused strong optimism in large banks and some foreign funds. At Citi, for example, they expect adjustment measures and a devaluation that could take the dollar up to $1,000. They also believe that it will need financing for US$ 30,000 million, but before the arrival of fresh dollars they warn that the country will have to go through the "pain".

For Jorge Amato, head of investment strategy in Latin America at Citi, the new government will be "the story" of the region in 2024 and generates "high expectations." "What Milei is proposing is radically different, the imbalances are so large and the adjustment is so significant that it will be very difficult for it to be politically sustainable, especially in the population," the economist said.

The harshest measures are the fiscal adjustment of 5% of GDP, a spending cut unprecedented in recent history, and speculation of a "great devaluation". From the bank, they believe that Milei has a "good diagnosis", but they want to know the package of measures that will be announced next week, a law with hundreds of articles with political, economic and labor reforms.

"The initial enthusiasm is obvious and justified, the nature of the pain that the economy is going to suffer is considerable, we think the optimism in the new president is going to be maintained and he is going to suffer early pressures and we will see how they resolve it, it is a very, very ambitious plan," said Steven Wieting, chief investment strategist and chief economist at Citi.

"The nature of the pain that the Argentine economy is going to suffer is considerable"

Steven WietingChief Investment Strategist and Chief Economist at Citi.

The diagnosis emerged as part of the presentation of Citi Global Wealth's annual investment outlook report. When asked about the changes in Argentina, a question was raised about the viability of the libertarian plan. "The program is much stronger than Macri's, he was unable to implement it, will Milei be able to?"

In the entity, they believe that the Argentine situation is "complex" because the new administration must face outstanding debt in 2024 without a financial "bridge". In effect, the government paid maturities with Central Bank reserves, which left the entity with a negative net stock and now "has no resources," while in the next 40 days US$ 4,500 million matures with the IMF and bondholders.

"The multinational lenders support the direction that the new administration wants to take, the overall framework, but this is similar to what Macri tried to do, they lent him money and Argentina couldn't deliver on the transformations, it's going to be harder for Milei to get money, I would suspect that the new financing is going to require some steps and testing before," Amato said.

According to its initial calculations, Argentina may need $30,000 in new financing in 2024, but it will likely need more funding. "That is why it is so important that Milei takes the first steps in the coming weeks to show that the country is willing to go through the pain of the adjustment and then the chances of obtaining the financing improve," the analyst added.

"Milei won't be able to make the cuts immediately because it's not socially and politically viable and that's the problem: to do it all at once you need a lot of money."

The bank believes that Monday will mark the beginning of a "challenging" and "tough" stage for the economy, with a significant cut in public spending, which will have an impact on activity, consumption and employment. But they warned that "it won't be able to make the cuts immediately because it's not socially and politically viable and that's the problem: to do it all at once you need a lot of money."

In turn, they said, the new money isn't going to come unless they take action, so Milei faces a "typical circular problem."

"How far does the official exchange rate need to go? It depends on the measures to be taken, some estimates place it between 650 and 1,000 pesos, very preliminary and depend a lot on the economic plans and restructurings," Amato concluded.

Cooling & Growth

Although the U.S. economy is likely to increase its potential. If the U.S. economy slows in early 2024, Citi Global Wealth's report notes that markets will focus on faster growth in the second half of 2024 and into 2025, which will be reflected in corporate earnings in 2024 (+4%) and 2025 (+8%) and benefit the broader stock market.

In its report "Slow, Then Growth: Investing in the Great Recovery of Markets," the bank forecasts a low probability of recession in 2024, while forecasting "mixed recessions" in certain industries and sectors, which will fade in 2024 as markets normalize.

"Markets lead economies, the 'Great Reset' means greater strategic returns will be available over the course of the decade, and for many investors, it may be the time when diversified, fully invested core portfolios can capture market performance in equities and fixed income," said David Bailin, Chief Investment Officer at Citi Global Wealth.

Now that the U.S. Federal Reserve may have finished raising rates, the bank suggests taking advantage of potentially higher Treasury yields. It also recommends stocks or assets in undervalued sectors where growth or changes are expected from trends, such as longevity and artificial intelligence.

NE

Source: clarin

All business articles on 2023-12-07

You may like

Trends 24h

Latest

© Communities 2019 - Privacy

The information on this site is from external sources that are not under our control.
The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.