“When this happens, quarantine through and after a successful global fiscal and monetary policy, we will be in a different world.” The assessment, which looks beyond the coronavirus pandemic, belongs to Leonardo Chialva, a partner at Delphos Investment, who assures that the world economy will be much more interventionist and with less space for the private sector.
The specialist participated in a teleconference organized by Dracma in a virtual modality that replaced the usual face-to-face breakfasts.
There was also Agustín Arreguy, financial analyst at the Cordovan firm, who assured that the numbers that are already being seen in the world speak more of a depression than of a recession. “JP Morgan’s forecasts for the United States are for a drop of four percent in the first quarter and 14 percent in the second, to recover later and end with a drop of 1.5 in the year,” he said.
Chialva analyzed that, for the economy, this scenario is “a kind of 2008, mixed with 9/11 (attack on the Twin Towers in 2001), with some characteristics of (the crisis of) 1930 that governments are trying to avoid from developed countries ”.
In this framework, he recalled that, in the United States alone, 6.5 trillion dollars will be injected between monetary policy (Federal Reserve) and fiscal policy (Treasury) and the same is being done in Europe.
“What must be avoided is that the capitalist financial system collapse, that companies and people cannot return the money to the banks and the system fails,” he said.
Shocks in trio
For the Delphos Investment analyst, this situation implies “an enormous risk of three major shocks“
The first, that of debt and monetary issue, would generate a “huge change in relative prices because dollars, yuan, euros will be issued.” Coins will be worth less and that, if the package is to succeed, “should be reflected in better asset prices like gold and stocks.”
The second impact is a “shock to globalization: 20 million to 22 million people flew per day. Many countries, such as Europeans, which had ceased to have an important industrial role, had a great contribution from tourism and that will change. “
The third is the shock in “productivity and efficiency”. The factories concentrated production in a few plants in Asia with a high level of productivity and now “they are going to have to diversify geographically and reduce efficiency and profit levels, which impacts companies.”
“What is at risk is the capitalist future as it is designed. It will change, as it did after the crisis of 1930. Politicians are in their sauce. This will leave us with a much more interventionist and less globalized world. With higher tax pressure, lower level of efficiency and productivity, more welfare, “he said.
In terms of sectors, tourism, the airline industry and net exporting countries will be the most complicated in the medium term, like Europe, while more closed economies, such as those of Brazil and Argentina, will feel less.
Chialva recommended betting on a rebound in the markets in the medium and long term, but called on investors to target the shares of good quality companies and sectors that are not at risk. He exemplified this with the oil sector, in which he suggested Petrobras, financially sound, instead of YPF.
For his part, Arreguy remarked that those who already have investments maintain them, even in this context. He recommended investing in bond securities and very conservative funds, in pesos or dollars.
Debt on the verge of limbo
In the midst of the worldwide health emergency due to the Covid-19, Agustín Arreguy, from Dracma, maintains that Argentina now faces lower demand and lower commodity prices, a lower oil price that leaves Vaca Muerta unviable, and an increase in the exit rate in the event of external debt restructuring.
In this framework, he warns that the probability of default on the dollar debt has a high chance. “This is going to be used as an excuse to propose a very aggressive restructuring offer and we could enter a limbo like in 2002 to 2005, without solving or paying anything. Although this would bring many inconveniences; I don’t see the government very uncomfortable with this, “he assured.
Delphos Investment’s Leonardo Chialva agrees with this vision of what can happen with debt negotiation.
“Argentine bonds are very poor quality assets. When there are much more attractive things in the world that drop 50 percent in price, investors prefer to focus on them. It is very likely a hostile proposal that is not accepted by creditors and we are left in limbo fighting with creditors and vultures. “
The original text of this article was published on 04/01/2020 in our printed edition.