Aguinaldo: How to protect the complementary half annual salary from inflation

In a 2022 that has been characterized by high inflation in economies around the world, in Argentina it has also registered a strong increase. The Consumer Price Index (CPI) for May stood at 5.1%. In year-on-year terms, the rise in prices in the Argentine economy was established at 60.7%. In turn, the data also confirmed that the The country’s economy has already spent 12 consecutive months with year-on-year inflation above 50%.

One of the factors that had the greatest impact in recent months was the strong push for raw materials, which occurred after the start of the war between Ukraine and Russia, which shot up both the price of energy, as well as that of food. Under this scenario, During the first five months of the year, accumulated inflation is already 29.3%.

What to expect for the coming months?

Although it can be said that this event has already been completely discounted, the truth is that there are still other factors ahead that make us consider that inflation could continue at these levels for much longer.

The arrears in transportation fares and subsidies has caused regulated prices to be considerably below the general index, generating strong pressure for fiscal accounts. This is why, as increases are agreed as a result of the agreement with the IMF; It will surely generate an impact on an inflation rate that is already very high.

Segmentation of electricity and gas rates: How is it determined who is left without subsidies?

At the same time, electricity rates are expected to increase by an average of 17%, while those of gas increase by an average of 20%. Under this scenario, and taking into account the latest Market Expectations Survey (REM) published by the Central Bank. Inflation is forecast to be 72.6% in 2022, a figure that represents an increase of 7.5 pp compared to the last Survey published the previous month.

What happened recently with CER bonds?

Before continuing with the investment alternatives to protect against the rise in prices in the Argentine economy, it is important to comment on what happened in recent days with the main fixed income instrument that serves as a hedge against inflation, CER bonds. .

During the past week, these assets had a historical drop in their price, thus cutting the gains of recent months and generating doubts about the future of the national debt in pesos. This scenario of falls is very different from what has been observed in the last year and a half, where CER-adjusted assets were in great demand and had good yields in dollars, outperforming the Merval Index and hard-dollar sovereign bonds.

Martín Guzmán calls for an exchange of bonds in pesos this Wednesday to refinance maturities

Although there were different rumors to justify the fall, the truth is that, At the heart of the movement is concern about the future of national government funding in the next year and a half.

Based on the prices and yields of the different CER instruments, it was observed that eThe market assigned a certain probability of a future debt restructuring for 2024but it did not consider this risk for those instruments that matured in 2022 and 2023.

However, it is important to clarify that, since 2019, CER-indexed debt in pesos has gone from representing 27.3% to 61.2%, with 69.8% of gross debt maturing in 2022 and 2023, as reported by the Ministry of Economy. With this scenario, and debt refinancing rates falling compared to January this year, the market anticipated a possible restructuring.

Despite the uncertainty that we have seen in the market in recent sessions, in our base case, we do not consider that there is a debt problem for the next twelve months and there is the possibility that the market has overreacted in the short term of the CER curve presenting opportunities for investors who can hold the instruments to maturity.

Observing the debt maturities that remain in the futurewe have a less busy second semester than the first in terms of maturities, especially the coming months, with the only major maturity being T2X2, in September 2022. Another justification for taking a position in CER bonds refers to the dynamics of future inflation. With twelve months of year-on-year inflation above 50%, the scenario does not seem to improve if we base ourselves on what was reported in the latest REM from the Central Bank.

What should you invest in to protect yourself from rising prices?

Given this challenging scenario, we believe that one of the best options for holders of bonds or short-term instruments maturing in 2022 or 2023 is not to make portfolio changes.

Second, for holders of medium to long-term bonds or instruments, that is, after 2024, we believe it would be ideal to rotate part of the portfolio to shorter-term instruments. Taking into account all the variables that influence the inflation data, in the coming months, we consider that the scenario will not improve significantly and could increase doubts about the treatment of the debt after 2023.

Argentina’s problem is not imports, because they are low in terms of GDP

Finally, thinking of those investors who are not positioned in these instruments and are wondering if it is an entry point, some aspects must be considered. First, current prices have made CER yields the highest they have been in the past two years. Second, with high levels of inflation such as the current and projected ones, the yields exceed other instruments in pesos.

However, it must also be considered that, as we get closer to the year 2023, the market’s perception of the risks of these bonds may increase, affecting the prices for those investors who do not hold them to maturity.

In this sense, and considering the inflation projections of the REM, a good option is the most liquid bonds with shorter maturities, but with good returns. In this group, you would find the letters X16G2which expires in approximately 60 days, and the X20E3, which expires in about seven months. In turn, it would also be a good alternative TX23thinking of an investment at maturity, in about nine months.

* Head of Research of IOL invested online,

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