Map courtesy of the CIA World Factbook

If investors had to blindly guess the name of a country that is difficult to invest in, an ongoing history of economic collapse and hyperinflation might make Argentina one of the top guesses. Late in 2023, Argentina’s stocks surged and its bond prices rallied after libertarian economist Javier Milei unexpectedly won Argentina’s presidential election. Many economists have doubted his ability to succeed from the start. But the markets in Argentina have remained solidly higher after the nation seemed on the verge of collapse.

Tactical investors are willing to look anywhere for upsized gains. Is it possible that Argentina still has some gas left in the tank for investors? Tactical Bulls will state first and foremost that Argentina’s financial and governmental history have been quite painful over the decades.

Morgan Stanley has just raised the Argentina financial institutions’ sector rating to a quite favorable stance for 2025. There are 4 ADSs which actively trade on the U.S. exchanges they have upgraded and the Wall Street giant is predicting further gains of 40% to 50% to its price targets. 

Milei was considered to be Argentina’s version of Donald Trump. He was known for a chainsaw approach at political rallies. His views were deemed radical in his plan to slash the size of the Argentinian state and to dump Argentina’s central bank. He wanted to slash government spending. He was pro-bitcoin and was seeking to replace the highly volatile Argentina peso with a peg to the U.S. dollar. He has so far slashed 18 government ministries into 8 ministries and laid off more than 30,000 government workers. And his pledge that things would get worse before they can better has been seen.

THE GAINS HAVE BEEN HUGE

Like it or not, Milei’s efforts have proven to be positive over the last year. Many investors still had doubt that any of these reforms would actually work. That has led many investors to doubt or second-guess whether the initial market gains would be sustainable. The Global X MSCI Argentina ETF (NYSEArca: ARGT) is living proof. Here is how the ETF had performed in dollar terms ahead and after the Argentina election in 2023 and since:

• ARGT had risen over 11% in 2022…
• the ETF had risen more than another 16% to the start of November 2023…
• it had then risen another 28% from the first day to last day of November (2023) alone….
• it rose another 2.7% in December (2023)…
• ARGT has now risen an additional 72% more in 2024…

The financial gains have been hard to ignore. That said, Argentina’s economy remains quite weak despite being the third largest economy in Latin America. Poverty remains much higher than normalized economic measures would judge as successful (50-ish percent). Data from the International Monetary Fund (IMF) show 2024 GDP at an expected -3.5% and then rising to 5% GDP growth in 2025. Projected consumer prices up over 200%, but the monthly gains in the last 6-month period have all handily been under 5%.

MORGAN STANLEY’S MACRO VIEWS

Morgan Stanley is jumping on the Argentina ship and upgrading its major banks and financial stocks with Overweight ratings. If the firm’s targets come to pass, there is a lot of upside compared to traditional U.S. banks. If the call is wrong, yet another lost opportunity in a nation that could have been so much more successful. And, again, the stocks have risen sharply ahead of this latest call.

Morgan Stanley upgraded the Argentine banks to Overweight, saying macro stabilization is playing out. Morgan Stanley expects the fastest-growing banking market to be supported with low credit penetration and many structural advantages. The upgrades have been listed in alphabetical order to avoid any ranking or preferential appearance. Its year-end price targets imply 40% to 55% upside potential. Morgan Stanleys research note was led by Jorge Kuri, Jorge Echevarria, Andrew Geraghty, Nicole Alcalay at the firm. Their combined views said:

Policy reforms are steering Argentina toward macroeconomic stabilization. If successful, it could be the region’s fastest-growing banking market, supported by low credit penetration and many structural advantages. However, risks and volatility remain high. Upgrading banks to Overweight.

The banking sector is viewed as trading at a discount to Latin American bank peers. The report says:

These discounts look attractive relative to the opportunities banks offer. As said before, Argentina is the third largest economy in Latam, it has one of the region’s wealthiest consumer bases, yet one of the least penetrated banking markets. If the political/macro scenario we envision plays out, Argentina could be the fastest-growing banking market in the region.

THE MAJOR UPGRADES

As the key Argentina ETF (ARGT) and the ADSs have already surged over the last year, Tactical Bulls also included the more “bullish case” scenario if things go even better than expected — and the so-called “bearish case” if Argentina’s reforms do not manage to hold on to their positive gains. If other known analyst reports have been filed in 2024 those have been included in summary as well for a comparison.

Banco BBVA Argentina S.A. (NYSE: BBAR) was given a so-called double-upgrade because its rating went from Underweight all the way up to Overweight (rather than Equal-Weight). Morgan Stanley also set a $27 price target versus a prior close of $17.22. Its ADSs were up another 9% at $18.85 on Monday and a 52-week range of $4.63 to $19.90. Morgan Stanley’s bull/bear scenarios for BBAR’s ADSs go to $36 in the bullish case and down to $6.00 in the bearish case.

Banco Macro S.A. (NYSE: BMA) also saw a double-upgraded to Overweight from Underweight with a $125.00 price target (versus a $92.98 prior close). The ADSs were trading up another 10% at $111.00 after the call, and the 52-week range is now $24.41 to $107.84. Morgan Stanley’s bull/bear scenarios for BMA go up to $170 in the bullish case and down to $30.00 in the bearish case. Both JPMorgan and BofA Securities raised their BMA ratings to Neutral in August 2024.

Grupo Financiero Galicia S.A. (NASDAQ: GGAL) was also raised to Overweight from Underweight with a $92 price target (versus a $62.32 prior close). This ADS was trading up another 7% at $66.50 on Monday and its 52-week range is now $15.32 to $69.29. Morgan Stanley’s bull/bear scenarios for GGAL go to $125 in the bullish case and down to $20.00 in the bearish case. in August 2024, JPMorgan raised GGAl to Overweight from Underweight with a $54 target and BofA Securities raised GGAL to Buy from Underperform with a $36 target. GGAL was also raised to Buy from Neutral with a $54 target by Citigroup in September.

Grupo Supervielle S.A. (NYSE: SUPV) was also raised to Overweight from Underweight with a $19 price target. Its prior close was $13.22 and its ADSs were trading up 15% at $15.10 on Monday. Its 52-week range is now $3.33 to $15.70. Morgan Stanley’s bull/bear scenarios go to $25 in the bullish case and down to $4.00 in the bearish case. Earlier this same month an upgrade was seen by JPMorgan to Neutral from Underweight with a $15 target.

MORE RATIONALE FOR THE UPGRADES

As the macro stabilization is playing out, this financial sector upgrade for Argentina is around the normalization of the Argentinian economy. This includes many of the new government policies and investor interest in the asset class (by the way, that’s code for “tactical”). The team noted that the banking minutia remains secondary to the investment thesis and that it is encouraged by the progress made over the past 12 months. These include spending cuts, tax increases, and structural reforms.

The team also sees further disinflation leading the way in 2025 and 2026. This is expected to be followed with lower interest rates, FX convergence and a strong rebound in GDP growth.

Policy reforms are steering Argentina toward macroeconomic stabilization, the analyst tells investors in a research note. The firm says that if successful, it could be the region’s fastest-growing banking market, supported by low credit penetration and many structural advantages. Morgan Stanley upgraded the Argentine banks to Overweight, saying macro stabilization is playing out.

IN THE END…

Tactical Bulls always reminds its readers and investors that no single analyst report should ever be the sole basis to buy or sell a stock or a group of stocks in this particular case. The views and price targets from this report are directly from Morgan Stanley. Tactical Bulls maintains no formal ratings nor does it maintain any formal price targets on any of the foreign banks mentioned in this report.

Any decision to buy or sell (or to hold or short sell) is up to each investor and that decision should be made with a financial advisor. And there are of course no assurances that any of the price predictions and the scenarios that back the calls up will actually come to fruition.

A special note should also be made here about the timing of this call. The election of Milei was over a year ago and the key ARGT ETF and the key ADSs that are in that ETF have by and large risen drastically in this timeframe. These banking ADSs that trade in New York have also risen exponentially.

Argentina and other nations in South America have a special place in history. Many nations in Latin America have faced very volatile and corrupt leadership, economic turbulence and hyper-inflation. The long and short of the matter is that investing in Latin America is suitable only for investors who are not tactically risk-averse at all.