Sunday, July 20, 2014

Is Argentina doomed by its debt crisis?

Will Argentina’s impending debt crisis prove fatal for the country’s economy and financial market?  

The jury is still out but the likely answer is “no.”  

Consider the evidence of the Buenos Aires Stock Exchange Merval Index.  Argentina’s stock market is still flying high after an extraordinary rally since February.  The Global X FTSE Argentina 20 ETF (ARGT), another reflection of Argentina’s stock market, made a new 52-week high as recently as a week ago.

If Argentina’s public sector is destined to collapse in the wake of its debt crisis, why has the country’s stock market been so bullish of late?  The implication behind the rally is that Argentina’s insiders know something that the rest of us don’t.  Regardless of how messy things may get in the very short term, the message behind Argentina’s equity market is that the country should emerge from this crisis without any major long-term hitches.