Argentine Stocks Lose Foreign Buyers at Fastest Rate in 8 Years

By James Attwood and Fabio Alves
June 16 (Bloomberg) -- Argentina's stock market is losing foreign investors at the fastest pace since 2000 on concern accelerating inflation and a three-month farmers strike will curb economic growth and corporate profits.
About 1,000 emerging-market funds sold $157 million in Argentine stocks through May, according to fund flow tracker EPFR Global in Cambridge, Massachusetts. That's more than the $118 million average daily trading on the Buenos Aires stock exchange and the biggest outflow since 2000, the year before the government's $95 billion debt default. Argentina's Merval index lost 4.7 percent over the past year, compared with a 27 percent rise for the Bovespa index in Brazil.
WestLB Mellon Asset Management's Bill Rudman sold Telecom Argentina SA, the country's second-biggest telephone company, as he cut Argentine holdings last month to 0.5 percent of the total $3 billion of emerging-market equity he manages, from 2 percent. The agricultural protests over higher export taxes, food shortages and street demonstrations are holding back investment.
``We felt particularly the farmers strike and friction in the country was accelerating what might be the next crisis,'' said Rudman, the Latin America manager at WestLB Mellon in London. ``Argentina risks being ignored by investors, becoming just a residual within the emerging markets.''
Before last month, WestLB Mellon held an ``overweight'' position in Argentina, betting the government would lift price controls and market restrictions.
Index Weighting
While Argentina has the world's 18th largest stock market capitalization, its weighting in the MSCI Emerging Market Index, a gauge for global investors' allocations, trails Peru's and represents an eighth of Mexico's. One Merval company, Luxembourg- based Tenaris SA, accounts for 75 percent of the MSCI Argentina index.
Rising commodities exports helped spur annual economic growth in Argentina above 8 percent in each of the past four years, almost double the pace of Brazil.
Annual inflation rose to 9.1 percent in May from 8.9 percent the previous month, the government said June 10. That compares with a 5.6 percent rate in Brazil.
Argentina's former central bank chief Alfonso Prat-Gay and opposition lawmakers say the government may have been manipulating the data to make inflation look tamer than it is since former President Nestor Kirchner replaced the officials in charge of the consumer price index in January 2007. Kirchner's wife Cristina Fernandez succeeded him in December after winning elections in October.
Shortages, Road Blocks
Barclays Capital Inc. said in a June 6 report that Argentina's economy probably will slow to 5.5 percent this year and 2 percent in 2009. The government may report official growth rates of 7 percent this year and 4 percent next year, Barclays economists Eduardo Levy-Yeyati and Sebastian Vargas wrote.
A freeze on energy rates stymied investment in the industry and prompted shortages. The farmer protest led to road blockades, food shortages and the biggest anti-government demonstrations since 2001. Confidence in the government is the lowest in five years, according to a survey by Torcuato Di Tella University published June 2.
``Nobody knows where this crisis is headed,'' said Hernan de la Carcova, 32, a portfolio manager at Grupo Rig in Buenos Aires who cut local holdings to 10 percent from 30 percent last year.
Argentina's main index fared better than some in Latin America. The Merval's decline compares with a slide of 23 percent in Peru and 7.1 percent in Colombia.
Tenaris Rally
Oil services company Tenaris, which accounts for 22 percent of the Merval and does most of its business outside of Argentina, has rallied 42 percent this year on crude's surge to a record.
Companies in Argentina's MAR index, which excludes Tenaris, trade at 12.5 times earnings compared with the MSCI Latin America index's 15.7. Buenos Aires-based Banco Macro SA trades at 8.3 times earnings compared with Sao Paulo-based Banco Itau Holding Financeira SA's 12.6 and Santiago-based Banco de Chile's 11.7.
Roberto Drimer, an analyst at Argentine Research in Buenos Aires, rated Banco Macro ``accumulate'' for the past six months, citing an expanding economy, a central bank ``doing a reasonable job on monetary policy'' and foreign currency reserves close to $50 billion.
``Short-term economic fundamentals are solid,'' Drimer said.
Since 2005, the government has required that foreigners deposit 30 percent of their stock investments with the central bank for a year to limit speculative inflows.
In October, the government tightened restrictions on domestic pension funds, requiring they keep more investments in Argentina to sustain economic growth. The rule is forcing them to sell about $3 billion in mostly Brazilian assets, according to Sebastian Palla, chairman of the country's pension fund association.
That money may help stocks, said Ben Laidler, Latin American equity strategist at JPMorgan Chase & Co. in New York. Chances the government will loosen regulations also make stock investments such as Telecom Argentina worthwhile, he said.
``But on a 12- to 24-month view, it's tough to see what reverses the trend,'' Laidler said. ``The fundamentals are getting worse. Medium term you're going to see less interest rather than more in Argentina.''