Investors Cut Argentina Exposure

Global investors dramatically reduced their exposure to Argentine assets in the wake of a New York court ruling last week, as well as the government’s recently announced financing plan, says JPMorgan. Positions in sovereign external debt dropped sharply in April to the lowest since Q2 2006, says the shop’s latest EM fixed income survey. “Uncertainty surrounding Argentine debt has increased as a consequence of the recent legal action,” according to the survey. “This could potentially affect Argentina’s liability management operations in the year ahead and so raise greater uncertainty around the financing program.” The ruling made upon the request of a group of holdout bondholders suing the sovereign, temporarily blocks Argentina from transferring or selling bonds held in the depository Trust Company in New York. Separately, exposure to Argentine FX and rates was also dramatically reduced in reaction to the government’s recently announced financing program “which indicated that they will rely heavily upon domestic investors [for financing going forward,]” says the survey. JPMorgan’s FX score for Argentina dropped to its lowest since January 2005, as was its score for real rates. International investors cut exposure to nominal rates to form a net underweight position, while locals remain overweight.