Argentine Pension Fund Seizure May Cause Brazil Stock Fire Sale

By James Attwood and Fabio Alves
Oct. 29 (Bloomberg) -- Argentina's planned nationalization of its retirement system may trigger a fire sale of Brazilian stocks as private pension funds are forced to shed foreign holdings.
The funds shouldn't own assets abroad, Amado Boudou, the head of the country's social security agency, told lawmakers yesterday. The agency wants AFJPs, as the pensions are known, to unload all Brazilian assets as soon as this week, La Nacion reported, citing Boudou.
``That's not news we like, but I don't think it will cause problems,'' Carlos Kawall, chief financial officer of Brazil's securities exchange BM&FBovespa SA, said in an interview in New York yesterday.
Pension funds in Argentina owned 1.8 billion pesos ($541 million) of Brazilian stocks including Cia. Vale do Rio Doce, Petroleo Brasileiro SA and Banco Bradesco SA as of Oct. 15, according to the regulator's Web site. Although that's only 0.1 percent of Brazil's total market value, it represents 21 percent of average daily trading in the past week.
Argentina's social security agency is seeking a resolution that would require AFJPs to sell 25 percent of the Brazilian assets as soon as today, 35 percent a day later and the rest the following day, La Nacion reported, citing Boudou. The proceeds would be used to calm local markets, according to the newspaper report.
Boudou wasn't available to comment, assistants said yesterday, and he didn't return phone messages.
`Shouldn't Be Invested Abroad'
Besides the Brazilian investments, the AFJPs owned 4.92 billion pesos of other foreign assets as of Oct. 15, according to the regulator's Web site.
``The funds shouldn't be invested abroad,'' Boudou said yesterday in a speech to lawmakers, who started debating President Cristina Fernandez de Kirchner's planned pension nationalization announced last week.
The government, grappling with a financial crisis that has frozen access to credit, is seeking control of about $26 billion in privately run retirement accounts. Nestor Kirchner, Fernandez's husband and predecessor as president, began tightening restrictions on private pension funds last year, requiring them to keep more investments in the country to sustain economic growth.
The country's main stock index tumbled 27 percent last week and the yield on Argentina's 8.28 percent dollar bonds due in 2033 soared above 27 percent as the nationalization plan spooked investors already shaken by slumping commodity prices and slower growth.
Argentina Ownership
The retirement system, set up in 1994 to help bolster capital markets, owns about 5 percent of companies listed on the Buenos Aires stock exchange and 27 percent of shares available for public trading, data compiled by pension funds show.
Boudou said in yesterday's speech that authorities will ``protect the value'' of the AFJPs' local equity holdings since Argentina ``doesn't need cash or funds,'' and will avoid any steps to exercise control over companies.
``Don't think we are going to rush out and sell at any price,'' he said.
Argentina's Merval index rose 6.6 percent yesterday as Brazil's Bovespa rallied 13 percent, joining an advance in equities around the world after commodity prices rose.