MercoPress. South Atlantic News Agency

Argentine stock market seen slowing down this year after strong 2006 increase

The Argentine stock market is expected to continue growing this year but not to match the 35 percent rise that placed it among the world's ten top performers last year, among other reasons,

because that increase was mainly based on a 110-percent rise in steel company Tenaris, something that is unlikely to be duplicated, brokers told MercoPress

The local market is a dwarf as compared to such regional giants as Mexico or Brazil. It traded last year some 35 million dollars while Brazil traded 600 million dollars. This means that a single company can make a great difference in the Argentine market, such as happened with Tenaris, the world's largest manufacturer of seamless steel tubes for the oil industry. But Tenaris weighing in the blue chip MerVal index has fallen from about 36 percent last year to 27 percent this year and the number of companies making up the MerVal grew from 13 last year to 15 now, still a very limited figure. Last year increase responded mainly to a strong world markets' scenario that dragged the small Argentine stock exchange, which also benefited from a remarkable nine percent yearly economic growth over the last four years since the country's worst ever crisis ended in 2002. The other top performers in 2006 were Venezuela, Indonesia, Russia, Spain, Philippines, Brazil, Mexico, Germany and Chile. Stock brokers expect this year the Argentine market to grow between 11 and 18 percent on continuing good international and domestic scenarios, including an expected decline in US interest rates from 5.25 percent to 5 percent during the second quarter, which should help funds flow to emerging markets. "We believe that the local market will continue to grow although at a more moderate pace after last year's strong increase," said Christián Reos, of Allaria Ledesma brokers. "We expect both Tenaris and the local market to grow about 12 percent." Guido Dennin, of SBS brokers, said that Tenaris continues to have growth potential although it is unlikely to reach last year's 110 percent growth. "This should be a good year for the Argentine steel sector due to good results for Tenaris, Siderar (manufacturer of rolled steel for the car industry) and Acindar (manufacturer of long steel for the construction sector)," he said. "Acindar, for instance, has been lagging and it should recover. The banking sector is showing good prospects too." Rafael Aldazábal, of Aldazábal brokers, said that local shares should continue growing this year considering that the capitalization value of Argentine companies is still very low as per international standards and even when compared to companies from other countries in the area. "More than increases, last year's were simply adjustments in companies' capitalization value." As for Tenaris, he said, "it still has growth potential in the view of those who, as I do, believe that for all the politization of the oil issue, oil is definitively a scarce good in the world and the investments to substitute it have not been made." He said that another factor that should contribute to uphold the country' macroeconomic figures and the stock market is the fact that while last year there had been fears of a fall in international prices of commodities â€" of which Argentina is one of the largest world exporters â€" "that possibility is no longer mentioned. Rather on the contrary, there is talk about that prices will be sustained." Furthermore, he said, while last year international interest rates tended to grow, they are seen either stabilizing or even declining this year. Referring to the bond market, Aldazábal said that Argentina is making "an enormous effort" to maintain the dollar at its current exchange rate of slightly above three pesos. "To uphold that will be not cost-free and, as a consequence, for Argentine investors, to buy dollar-denominated bonds doesn't seem the best alternative at this moment." Argentina should be able this year to keep inflation at around last year's 9.8 percent because inflation is somewhat kept under the lid of the government's price control policy, he said. "But when that pressure is liberated there will be an important correction that will fuel the CER (inflation adjustment index) and hence to buy CER-adjustable bonds plus a low interest rate, that is what there is in the market now, seems more convenient than buying bonds denominated in foreign currency or in pesos." The government last year reportedly spent 1.47 billion dollars in subsidies to keep inflation under two digits, and the Central Bank last year absorbed nearly 27 billion pesos (nearly nine billion dollars) that it had issued to buy dollars amid its efforts to uphold the dollar's current exchange rate. Asked what could be an advisable portfolio for an investor this year, Aldazábal said: "We are rather conservative. I would say 30 percent in shares and the balance in public securities, either foreign bonds or CER-adjustable Argentine bonds. You can also buy some warrants linked to GDP growth if you are very optimistic." SBS's Dennin said that CER-adjustable bonds were showing "somewhat good prospects as well as the warrant linked to GDP growth, if the country's economic figures continue to be solid." Allaria Ledesma's Reos said that they expect an about 10 to 14 percent growth in bonds in general. "The only strong increase we see this year is that of the warrant linked to the GDP growth, which could climb 30 percent. However, that is not too high for an emerging market." By Guillermo Háskel - MercoPress - Bs. Aires