Getting Exposed to the Argentine Default

The ongoing court-room battle between President Kirchner and the so called Vulture Funds has led to battering of the stock markets and more importantly the reputation of the country that may very well be on the brink of announcing a second Sovereign Default in the last ten years. It is the beat-down prices which in turn are generating interest among the foreign investors sold long term on Argentina Funds, seemingly backed by the market heavy weights who will not hesitate to bet on the other side of this curve.

Playing the current Argentina default can be a very tricky strategy and a trickier plan is required to time the actual inflow. The 2001 state default on bonds initiated a growth surge for economy for years that followed as a lot of money actually came back to the nation during post default years and market participants to have no reason to complain about the gains made from Argentine ETFs and stocks between 2002 and 2010.

Things got messy since an American court ruling came out stating that the Argentina should ideally pay $1.3 billion to the debtors who did not accept the terms of 2005 and 2010 debt restructuring policies. The ruling also restricted the government to payout the existing investors till the issue is resolved thus resulting in a technical default scenario for the government, which as per most analysts ought to be a natural possibility if things don't work out amicably.

The fundamentals of the economy are good; the Latin nation has no reason not to grow in the long term. It has a sizable young population, a growing middle class and natural reserves that are among the best in the world. In fact, as per legitimate estimates of 2010, it emerged as the second biggest South American economy behind Brazil and simultaneously dealt with higher unemployment rates, a declining peso along with a nation-wide unrest against the political mandate.

Moreover a steady economy growth witnessed even after the 2001 default (on $ 100 billion worth of bond payments) only indicates that it is the uninspiring governance that has led to this fiasco to an embarrassing level where a state's navy jet was impounded by debt holders in lieu of their due payments. A very probable shift may be foreseen, either in the ruling body or their economic stand which is prompting investors to give a closer look to the Argentina 20 Index ETFs reflecting the performance of the FTSE benchmark that tracks the economic growth of the country.

FTSE Argentina 20 Index is a benchmark that currently comprises of the 21 most liquid listed securities that have their prime business interests in the Argentine Fund, but are listed in foreign exchanges. For all good reasons, index has heavy dependence on consumer staples and materials which is close to 70 % and more or less it is the fairest evaluation of the nation's fiscal health and performance.

Equity traded funds that correlate to the FTSE index maintain an equity portfolio very similar to that of the parent benchmark. Individuals seeking for profits through an administration make over or a policy shuffle may very well consider this as long as their risk appetite for volatile products is high to aggressive and have a wit to speculate.

at 8:46 PM
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