December 6, 2013
Merval index promises to keep increasing
Brokers agree that new records will be broken, even though this week drops
Investors who bet on the Merval this year have won big. With an 86 percent increase in Argentina's benchmark stock index so far this year, is there still time to join the party?
That seems to be the question on many amateur investors who are salivating at the thought of getting returns that are many times what they can get from the much safer fixed-rate deposits.
The Merval index has increased 22 percent so far this month. But there are signs investors are bracing for a dip soon as profit-taking was evident this week, when the market dropped as much as 2 percent Tuesday and Wednesday. On Friday the Merval closed at 4,730.14 points and dropped 2.2 percent
"I identify two main factors that led to this increasing trend," Marcelo Busquets, a market analyst, told the Herald. "The primaries showed the market that there are a number of options after Kirchnerism leaves office, which combines with the government's decision to keep spending. The increase has been constant and will continue."
Santiago Llul, vice-president of Futuro Bursátil brokerage, agreed with Busquets that the increase will continue.
"There are rumors of international funds investing in Argentina and that has an effect on the Merval," he told the Herald. "People want to beat the increasing inflation rates so they choose to invest in the market, which is a better tool to make money than buying dollars."
This is hardly the first positive streak of the year. In fact, the Merval experienced a clear increasing trend that began in November and lasted until May, when the index reached 4,000 points and increased 81 percent. Then the market went through a downward period, which was followed by the current increase that currently has no end in sight, according to brokers.
"I don't see this increase as a bubble that will burst. The prices of the stocks will continue increasing, which will lead to new records," Alexander Zawadzki, a broker at Schweber, told the Herald. "More people started to see the cheap prices of the stocks and the increase of the bonds and decided to invest in the market."
Yet anyone who decides to jump in the market now should be ready for some volatility. Brokers agree there could be some marked losses in the coming weeks.
"The market will rest for a few days and experience a short-term halt. But it won't remain in that place for long," Busquets said. "I wouldn't be surprised to see the market breaking the 6,000-point barrier before the end of the year."
The leading stocks
Banking, energy and oil sector stocks have been mainly responsible for boosting the market increases. Banks top the list of companies that have seen the largest increases in share price, with Banco Galicia (45 percent) and Banco Francés (39 percent) leading the pack. Electricity distributor Edenor has accumulated a 76 percent increase so far this year, while YPF, punished in the markets after last year's nationalization, has increased 30 percent.
"All the stocks are breaking records every week because they're undervalued. Nevertheless, some have reached ceilings, like the banks that won't continue increasing," Llul said. "The electric companies, on the other hand, still have a long way to go since they are behind compared to other stocks. An Edenor share used to cost less than a pack of gum".
As the stocks increase in value more people are deciding to join the market, meaning that the cash traded in the Buenos Aires exchange continues to increase.
"We started the year with little money operated in the market but now that has changed," Busquets said. "La Salada outdoor market used to move more money in a month than the Merval, but now a considerable amount of money has been traded over the last 50 days".