Javier Milei was the first right-wing presidential candidate in many, many moons to have a real chance at leading Argentina. And as of Nov. 18, he's won it.
Milei's platform is, in a word, ambitious.
He's vowed to dollarize Argentina's economy, shutter the central bank, and completely cease money-printing. He wants to dismantle several government institutions, letting the private sector handle them instead. He's appeared on more than one occasion holding an honest-to-God chainsaw to drive home his central message of "tear down the bureaucracy."
All of Milei's "drain the swamp"-style rhetoric is reminding many investors of a certain 45th U.S. president who presided over one of the greatest stretches of stock market gains and economic prosperity in history.
They're betting history will rhyme. Argentinian stocks are up 30% in the last month, much of those gains coming from the few trading days since Milei's win.
Whether Milei follows through on his promises, and whether those promises will even be of clear benefit to Argentina, remains to be seen.
But today, with such a huge move in Argentine stocks, we should take a close look and see if this is a trade worth following… or fading.
The concept of a "safe portfolio" is about to be completely redefined.
For the last year and a half, everyone has been pushing their money into cash. But what if there was a hidden risk that was going to leave them exposed? I'm not talking about the death of the dollar or anything silly like that.
Let's start with the 1,000-foot view, so we can see what kind of price action we're dealing with.
Here's the Global X MSCI Argentina ETF (ARGT):
Few things to note here:
ARGT has both horizontal support around $47.63 — the top yellow line it tried to punch through all this summer, and finally did last week…
As well as a rising white support/resistance line at the top tracing the uptrend all the way back to September 2022. ARGT broke down below the line as stocks took a bath in September, but the last week of price action has put us back above it.
The ETF is overbought on its Relative Strength Index (RSI), at its second-highest reading of the year.
The moving average convergence/divergence (MACD) indicator is similarly overbought, but the green momentum bars at the bottom of the chart indicate the trend is still strongly higher.
All this taken together, I would be cautious jumping into the Argentinian trade — at least for now.
Technical conditions are quite overbought, and we've taken the elevator to get there. Before we see any substantial further price rises in ARGT, we're more likely to see some chopping back and forth to work this euphoria off — if not an outright reversal.
As I suggested up top, we must also be mindful of the fact this rally is highly narrative-driven — something we should always take with a spoonful of salt.
Investors are speculating that a Milei win means Argentina could turn its economy around and be the shining star of Latin America it was 50 years ago. That's not impossible… but there's a big hill to climb before that happens.
Of course, as any good investor knows, "It's a market of stocks, not a stock market."
So let's peek under the hood to see which Argentinian stocks are driving the rally… and whether we should buy them today.
Wall Street is in an explosive A.I. "Arms Race". And the players aren't just vying for a bigger slice of the $46 trillion stock market... They're fighting to survive. As Bridgewater, a heavyweight hedge fund put it..."Evolve or die." Everyday folks just can't compete with Wall Street's new A.I. firepower.
That's why TradeSmith built this new A.I. tool called An-E. Recently, we put it to the ultimate test on Wall Street and got shocking results.
The top two holdings of ARGT do a good job of showing the opposite ends of the risk spectrum:
MercadoLibre Inc. (MELI) | 26% of ARGT
MercadoLibre is, as my Latin friends describe it, the "eBay" and "Amazon" of South America all in one. It's the premier e-commerce and online auction website.
This has been one of the biggest movers after Milei's recent win, with the stock surging 23% from the start of November. But if you ask me, this is not the stock to be rushing into right now.
MELI is priced at 81x earnings, a supremely rich valuation that exceeds even that of Amazon (77x earnings) here in the States — our closest analog. Its revenues and earnings are growing, yes, but such a valuation is nowhere near supportive of those revenues.
We're talking about revenues of $3.76 billion for MELI against $143 billion for Amazon. And while income growth was strong over the previous year at 178%, it still trailed Amazon's 243% surge.
MELI also operates in a country with significant political risk (lest we forget Milei's chainsaw act). That should be a damper on a company's valuation, but this risk is currently being ignored.
That's also setting aside the broad condition of consumers worldwide, especially in inflation-struck Argentina. You could make the case that high inflation encourages spending at consumer discretionary companies like MELI, but companies like this are also vulnerable to economic slowdowns.
MELI may be a good long-term buy on the idea that it'll grow into its pricey valuation, but I do think we'll see better prices to buy at in the near future.
YPF Sociedad Anonima (YPF) | 7.85% of ARGT
Here's another one of those stocks I own showing up again…
I bought YPF earlier this year chiefly as a diversification move for my energy portfolio, but also as a speculation that Milei would wind up becoming Argentina's president.
Turns out I was right. What's more, Milei's presidency holds significant implications for YPF.
Milei has publicly stated he plans to privatize YPF, which is currently majority state-owned. He's also said he plans to end fuel price controls, which could considerably impact the bottom line of YPF — likely for the better.
All this could lead to more direct foreign investment into the major oil firm. No big surprise the stock is more than 50% higher from the recent lows.
YPF is also dirt-cheap, trading at just 9.5x earnings, while Argentina's stock market traded at an average of 23x over the last year. This is a much more comfortable valuation for a conservative investor.
And the growth potential in YPF, now with Milei attempting to unshackle it from a decade of government bureaucracy since it was privatized in 2012, is bullish for the stock.
Milei will likely need to come up with the $16 billion the Argentine government was ordered to pay from a U.S. court before he puts his plans into action, so that risk should be noted as well.
Overall, I haven't added to my YPF position but do plan to keep holding it. And I think it's a better buy, in general, than a consumer discretionary stock from the region right now.
These two stocks have seen a lot of attention the past week, which is why I point them out here.
The Argentine stock rally may have longer-term legs. But for the time being, with the trade so overbought, we should tread lightly.
We'll keep a close eye on what's happening in Argentina here in TradeSmith Daily. This election marks a potential turning point for what was once one of the world's wealthiest countries. There's just as much opportunity in that as there is risk, which warrants close and regular analysis.
As for the stocks, I don't think it's an especially bad idea to buy either of them. MELI is a higher-risk play, to be sure, and would warrant a smaller position size.
I would also strongly suggest setting some buy orders maybe 5% or even further below the market price. If you have to buy them today, consider trading just half of your normal position size with the plan to buy more should prices fall.
If you know Jason, you know how weird that sounds. "Frightening" isn't really Jason's thing.
But the points Jason makes here are simply too significant to ignore. The possibility of a $6 trillion financial bubble about to quickly unravel, threatening the savings of you and me and frankly most everyday people, is VERY real… And could have a tremendous impact on your wealth in either direction, depending on what move you make next.
I personally have my money in many of the assets Jason speaks about here, and I'm strongly considering making some moves to get out of the way of what's likely coming.
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
Post a Comment
Post a Comment