By Alejandro A. Tagliavini *
Ezequiel Burgo wrote that foreign direct investment in Argentina registers the lowest levels since the 2001 crisis. According to the Central Bank (BCRA), until June 2021 US $ 748 M entered the country during the last twelve months as direct investment by non-residents. A frankly ridiculous figure and that, obviously, is due to very specific cases and maintenance of existing ventures, showing that deep down there is disinvestment in Argentina.
Only 1.1% of GDP was due to foreign investment in 2020, well below the average for the region (3.7% between 2011 and 2020), the lowest level since 2016 and one of the lowest in historical terms. Today the stock of foreign capital is 26.4% higher than it was 20 years ago, as can be seen in the graph. But in real terms, that is, discounting dollar inflation, it is lower:
The reason for the divestment is more than obvious, a State which is too heavy in terms of coercive regulations, if not prohibitions, that inhibit economic activity, and an overwhelming fiscal burden.
Thus, given this authentic flight of capital, it is not surprising, for example, that Argentines are among the foreigners who buy the most properties in Spain, according to Reporte Inmobiliario. Of the total sales made during the first quarter of 2021, 9.72% were made by non-Spaniards, of that total almost 1% corresponded to Argentine buyers. During the first three months of 2021, according to the College of Registrars of Spain, 13.6% more units were sold than during the last quarter of 2020.
As I have said, of that total, almost 10% were acquired by foreigners and within that ranking led by British, Moroccan, French and German buyers were joined by Argentines – the only nationality on the American continent – with almost 1% of total purchases from foreigners.
And the analysts estimate, based on confirmed operations and growth in inquiries, that the number of Argentine buyers will continue to grow. In other words, Spain seems to be emerging as an incipient investment destination for Argentines in their eagerness to leave the country caused by a new wave of migration and in the search to save their capital.
Meanwhile, the peso could depreciate, encouraging further leaving the country. Last Friday, the latest information available, the BCRA would have sold USD 27 M of bonds against pesos, judging by the «other» factor in the Monetary Base report. Sales that would have reached a total of USD 143 M during the entire past week. Thus, the government tried to keep the stock market dollar at $ 170. Financiers linked to the Government obtain dollars MEP at $ 170 to resell them in the «illegal» market, «blue», to prevent it from exceeding $ 180.
The truth is that the blue has remained relatively stable for fifteen days and this past Friday it remained at $ 178.50, its lowest value in three weeks, after scoring a value of $ 185, leaving the gap with the wholesale official exchange rate at 84.2%, the lowest level since mid-July.
But, strictly speaking, friendly hands are not the cause of the price of blue, not in the background, although they can make it oscillate momentarily, but inflation, that is, the excess supply of the peso over demand. And the printing machine seems to continue at all «electoral rhythm» although at the same time, ironically, due to the same inflation and the incipient rebound of the economy, the demand will be higher, partially neutralizing the emission.
In July $ 180,000 million were issued -which, strictly speaking, is only USD 1,000 million or 0.05% of the monetary base- and until the end of the year it may be at least another $ 700,000 million since it seems that the government plans to cover the growing fiscal deficit with higher issuance.
Meanwhile, and speaking of investing outside of Argentina, Wall Street continues to rise in large part thanks, precisely, to inflation that remains at the highest level since 2008. In the US, the interannual CPI grew last month by 5.3%, according to analysts, after beating expectations in June and rising 5.4% in that month. And the majority position, or at least official, that it is temporary, that we are seeing a slowdown, the product of specific circumstances that are explained by the increase in the price of raw materials, seems to crunch.
In fact, no one believes that it is transitory but a consequence of the exorbitant monetary issue by the Fed as well as central banks around the world. Thus, the mentions of inflation, by companies, in their latest earnings reports rose 1,100% year-on-year:
No one is so optimistic about the recovery of the global economy anymore as China’s economic momentum has been slowing since the beginning of the year, US growth dynamics are expected to peak in the second quarter, and in Europe and on a global scale, in the third quarter. Still, Wall Street is at all-time highs, unable to avoid suspicions of overbought and undoubtedly driven by inflation.
And the S&P 500 promises to keep reaping highs:
For Goldman Sachs (GS), the S & P500 will rise 11% in just under 1.5 years. And it’s based on earnings, announcing that «We raised our EPS (earnings per share) estimates to $ 207 (from $ 193) in 2021 and $ 212 (from $ 202) in 2022. That is, 45% annual growth. and 2%, respectively. Relative to the consensus, GS expects higher revenue growth and further pre-tax profit margin expansion as companies successfully manage costs and high-margin techs become a larger part of the index.
Contrary to consensus, GS estimates that corporate tax reform will pass in Congress and will be a headwind for BPA in 2022 and beyond. In a scenario without tax reform, GS’s EPS and price targets approximately 5% higher.
S&P 500 estimate according to GS
Meanwhile, beyond inflation, Bitcoin and Ethereum (ETH) registered gains in the cryptocurrency market after the update. Ethereum was attending the «London hard fork» this week which resulted in more ETH to be burned and clears the way for a major system upgrade, dubbed Ethereum 2.0, the subject of several years of work.
In short, speaking of crypto, the executive director of Nasdaq (NASDAQ: NDAQ), stated that the exchange intends to apply blockchain to the financial market infrastructure and become a disruptor. Despite the current state of the cryptocurrency market, the Nasdaq CEO recognizes the potential of blockchain technology (the decentralized protocols on which cryptocurrencies are based for their accounting) and the stock market is «very focused on how we can carry this technology to the markets and become a disruptor ourselves».
* Senior Advisor at The Cedar Portfolio and Member of the Advisory Council of the Center on Global Prosperity, de Oakland, California