Argentina’s middle classes were so battered in the recent economic crisis that it could be a long time before they entrust their wealth to the country again.
Argentines have a long history of sending their money overseas. In fact, today the total is estimated at $160bn, more than the $150bn in external debt. This sum dwarfs mutual funds under management in the country itself, just 6.9bn pesos ($2.3bn), pension funds at 47.5bn pesos and total deposits of 85bn pesos. There is also estimated to be $20bn in dollar bills “under the mattress”. Mutual funds are down from 10bn pesos ($10bn under dollar convertibility) in 2001.
Eduardo Eleta, president of ABN AMRO Asset Management in Argentina, says: “The people’s mentality has been to invest in property or to send their money abroad. There has been a great deal of political instability in this country over the past 60 years. People want security.”
One leading banker says: “The traditional families have been sending their money overseas for 50 years, either through Citibank in New York or one of the Swiss banks. It’s all about safety. Now, it’s all done through Uruguay or Miami.”
Asset levels
Santander Investment is the biggest asset manager within Argentina with 1.4bn pesos under management, followed by Schroder at 800m pesos, Francés Administradora de Inversiones (part of BBVA Banco Francés) at 678m pesos, and ABN AMRO at 631m pesos. Today’s total of 6.9bn pesos under management includes 4.69bn pesos in money market funds and 459m pesos in fixed income.
The sense of insecurity has only been reinforced during the recent economic crisis. People had to endure widespread banking restrictions – known as the corralito and the corralón – in November 2001 and the ending of dollar convertibility in January 2002. They saw their dollars confiscated and replaced by pesos at the rate of 1.4 pesos to the dollar (despite the dollar fetching up to 4 pesos on the money markets). Capital restrictions were also implemented, preventing people from transferring more than $100,000 out of the country every month (this has now been raised to $1m).
Maria Laura Tramezzani, chief executive of Consultatio, one of the biggest local asset managers, says: “This was a very difficult period for people with their money invested in this country. The local portfolio management industry has been destroyed. We had $200m under management but had to advise everyone to liquidate their funds. We now have $30m under management.”
Agustin Etchebarne, a partner at Delphos Investment, says: “Everything changed with devaluation of the peso. Everyone with their assets in Argentina had them decimated. It was only those with their money abroad that did quite well.”
Top 10 asset managers in Argentina Name - Amount (Argentine pesos) Santander Investment - 1.4bn Schroder - 800m Frances Administradora de Inversiones - 678m ABN AMRO Asset Management - 631m 1784 S.A.S.G.F.C.I (Bank Boston) - 584m Soc Gen Asset Management - 462m BNP Paribas Asset Management - 388m Pellegrini - 363m HSBC Administradora de Inversiones - 345m Galicia Administradora de Fondos - 265m Source: ABN Amro
Capital flight
Most sophisticated Argentines during the crisis tried to get their money out of the country. According to MacroVisión, an economic consultancy based in Buenos Aires, capital flight was $12.8bn in 2001, $13.1bn in 2002 and $5bn in 2003. It is predicted to be $5bn for this year, too. The last year with a positive inflow was 2000 with $1.35bn.
Until 1996, the asset management industry within Argentina was purely equity funds. A change in the law in 1997 allowed money market funds that have a maturity of 95 days or less. These made up 80% of the market until the crisis in 2001.
According to the law, no more than 25% of an equity fund can be invested in foreign shares (the other 75% must be invested in the Mercosur countries, consisting of Argentina, Uruguary, Brazil and Chile). Deutsche Bank was the first major player to get around this problem by introducing Certificados de Depósito de Argentina (CDRs), which operate on the same principle as American depositary receipts (ADRs) in the US. These are considered local instruments because they are listed on the Argentine stock market, although the underlying asset is invested in up to 100 major foreign stocks.
The asset management industry is still reeling from the 2001-2002 crisis. One leading stockbroker says: “Would I invest my wealth in Argentina today? The answer has to be ‘no’. I would send it abroad. There is still just too much risk.”
All the major US firms – including Lehman Bros, Merrill Lynch, Citibank, Prudential Financial and Smith Barney – have offices in Buenos Aires and will help Argentines who wish to invest abroad. Several Swiss private banks have an office in the city; Bank Hofmann is one of the most important.
World class growth
However, the economy may have turned around. It grew by 8.4% last year, one of the highest rates of growth in the world. Delphos Investment predicts it will grow by another 8% this year. Some sectors of the economy are booming, such as soya production. The price of soya has increased to $9.50 per bushel today compared with around $4.50 per bushel in 2002.
There are stories of some farmers with millions of dollars, not knowing where to invest their money. One area where Argentines have felt secure about putting their money is in real estate: top-end property prices in Buenos Aires collapsed by 50% between November 2001 and August 2002 but have now recovered to 85% of their 2001 value. Economists are predicting they will be restored to their 2001 level this year.
The Merval stock exchange also rose by some 90% last year but has been a rollercoaster ride for any investor over the past 10 years; it is still at less than half its June 1996 level.
Ms Tramezzani says: “I am not that optimistic for the asset management industry for retail clients. The economic crisis has helped to polarise Argentina between the very wealthy and the very poor. Any one on a salary has really suffered and the number of retail clients shrank.”
Jorge Cohen, president of Cohen SA, the Buenos Aires stockbroker, said: “Argentina is a very particular, peculiar country which does not pay its external debt but the people have over $100bn invested abroad. If the country does not reconcile its international creditors, foreign banks could pressure people with their money overseas.”
Despite the pick-up in the economy, Argentines remain highly sceptical about investing in their own country and even those with money overseas will not feel at ease until the government reaches an accord with its creditors.
