The CNV published a resolution that requires mutual funds to invest 75% of their assets in assets denominated in local currency
The escalation of parallel dollars, which are trading above $ 100, is a concern for the Government. Although there is little scope for action on the blue dollar, the authorities turned to developing several regulations to try to curb the stock dollars, that is, the cash with liquidation and the Mep.
In this fight, the National Securities Commission (CNV), as a market regulator, acts as a spearhead. The agency published two general resolutions that affect mutual funds (FCI) and seeking generate a negative slope in the price of the stock dollars.
The last regulation was known last night and compels the funds whose currency is “pesos” to invest 75% of its assets in assets denominated in local currency. This affects the strategy of several FCIs that, given the uncertainty scenario, had acquired dollar bonds, either of local or Latin American origin. Through those assets, they aimed to offer a dollarization vehicle.
“This will clearly affect all the FCIs – peso currencies – that were targeting Latam (these practically disappear, at least, with this strategy), and all the FCIs – peso currencies – that basically had their position local dollar assets (ON, sovereign, provincial bonds). It will even affect FCI whose objective was infrastructure and SMEs, who had these instruments in dollars, “said Portfolio Personal Inversiones (PPI).
As established, the funds have until May 15 to adapt to the new regulatory framework, although there will be two partial adjustments, on the 4th and 8th of next month. Both PPI and other industry participants they talk about a disarmament of assets for around uS $ 1 billion.
For the CNV, the measure takes into account the economic context and the consequences of the Coronavirus pandemic because it considers it necessary to “review the treatment that should be given to investments in the FCI portfolio so that they are channeled to productive development in the national territory”
In this sense, it can be assumed that the body led by Adrián Cosentino expects that the funds redirect their investments to the market in pesos. However, in the industry they warn that there could be bailouts before the change in the conditions of the fund.
Yesterday’s resolution complements another, published at the end of last week and whose deadline will also be May 15. There holding of dollar deposits was limited to 25% of equity of the funds in pesos (or those denominated in dollars but which have issued quotas in local currency). Industry calculations estimated that the FCI were exceeded by u $ s148 million from that standard.
With this regulatory combo, funds will look like this forced to liquidate part of their assets in dollars, which will have 4 consequences on the market:
1. Downward impact on the stock market dollar
The main effect that the Government seeks, although transitory, is lower the stock dollars. That’s because the funds have to disarm their positions in foreign currency assets and that greater offer lowers its price, so it also becomes cheaper to dollarize by buying and selling bonds.
According to the adequacy schedule published yesterday by the CNV, the next Monday the FCI must reduce by 30% the excess investment in assets that are not in pesos. As the market operates with accreditation terms of 48 hours and this Friday is a holiday, the FCI are forced to sell dollar securities today to be in order on Monday.
Thus, US currency bonds showed declines of up to 1.9% in the first hours of tradingAlthough they cut losses after noon.
On the other hand, at 14:30, the Mep dollar fell 7.2% to $ 108.54, while the cash settlement, fell 7.5% to $ 110.63.
“In the immediate future, there will be a drop in cash with liquidation. It is a reasonable drop, it is not wild. That is the only achievement that there will be: a temporary relief on exchange rate pressure but without modifying the background conditions. This It is a chance to re-arbitrate for a lot of people who wanted to buy dollars and at $ 115 it seemed expensive. Now you will take advantage to buy“said Diego Falcone of Cohen.
Anyway, they estimate that the impact on the prices will be limited, as happened last Friday, after the first regulation published by the CNV.
“For the most part, the effect of this will be neutral because those who were invested in the funds will rescue and buy dollars“predicted an operator.
2. Less market for companies
Funds in pesos that invested in dollar assets could have not only government securities in their portfolios, but also corporate debt of local companies.
“We come from a time when funds could not be established in dollars and, furthermore, in the Macri government there was an incentive to arm bi-monetary funds (now discontinued by the CNV). This was used to arm these products that basically invested in assets in Argentine dollars or Mercosur“Falcone said. And he detailed that among the Argentine bonds,”they bought negotiable obligations (ON) in dollars from companies such as Vista, AES Energía or John Deere, among others”
Vista, Miguel Galuccio’s oil company, is one of the companies that issued debt in dollars locally
“Those companies they ran out of market, with the disappearance of $ 11 billion or almost $ 1 billion of potential buyers for small issues, of $ 50 million. All of these ONs, which today are bursting at low prices, harming the shareholder, could not be issued abroad. For the costs, for a placement abroad to be viable, at least they have to be made for $ 250 million. There are a large number of companies that served them this local market that has just been destroyedFalcone said.
3. Negative impact for the investor
The funds that have to be adapted to the new regulations may have a drop in your wealth because the funds are forced to quickly sell their positions at lower market values. As a consequence, there could be a loss for the investor, for a less share value.
“One of the points that concerned the managing companies was not only the readjustment of the strategies – and consequently, the change in the composition of the portfolios -, but also the low liquidity of some assets that they can further deepen the movement of the share value, if the bailouts are important, “the PPI morning report said.
The same report warned: “We keep like this extreme caution, as We cannot rule out that the FCI in pesos and that follow the curve in dollars or maintain investments in Mercosur may have a strong negative impact on their value.”
4. Loss of confidence
The change in the rules of the game generates a loss of confidence in investors, who had resorted to funds in local currency that, at the same time, assured them dollarize at least part of their capital.
From the industry they warn that the quotaspartistas who were looking for that exchange coverage will very likely decide to rescue their participations and prefer to another form of dollarization that, for example, can boost the price of the Mep dollar or the cash with liquidation in the next days.
“The government broke a contract that the funds had with investors. This generates mistrust in the product and will undoubtedly harm the savings of individuals and companies in the medium term via these instruments, “said one operator.
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