In what should you invest in Argentina this 2023 to save yourself from inflation?

In what should you invest in Argentina this 2023 to save yourself from inflation?

Key facts:
  • “Bitcoin is the best investment option for 2023,” said an investor with 10 years of experience.

  • Economists expect a grim outlook for Argentina, but there are investment options.

It is not news that inflation in Argentina does not stop growing. It is expected that in March it will exceed 100% per year and, of course, the income does not rise to the same level. This is how the salary of Argentines is enough for less and less and the only way out to combat this is to look for new options to make money. Among them, investing in financial assets stands out.

However, there are many types of investment and selecting the most suitable for each one is not so easy. If one chooses wrong he can have exorbitant losses of money and that is just the opposite of the objective of this mission. For this reason, if you are in Argentina, it is vital to receive training on this matter in order to prevent inflation or a bad investment decision from eating up your income.

Among the options that exist, many say that it is convenient invest in a fixed term, shares or cryptocurrencys as bitcoin (BTC). But is it really so? What is the best in Argentina? Two Argentine investment specialists answered CriptoNoticias all these kinds of questions based on their experience and opinion. They are the investor, Fernando Pereira, and the economist, Federico Alonso.

How to fight inflation and make pay pay in Argentina?

Federico Alonso is an economist “from the Argentine jungle” as he says and is recognized in Twitter for sharing his perspectives on economics, finance, and blockchain and artificial intelligence projects. For this reason, we asked him how to fight inflation and make your salary work in Argentina and this was his answer:

The good news is that there are several alternatives on the market. The bad news is that, due to local economic instability and added to the fact that it is an election year, they all have a higher or lower share of risk.

A good investment strategy in Argentina today seeks to hedge against day-to-day inflation, but also against jumps in the dollar. It happens to many investors that while the dollar is calm, they spend their entire portfolio on instruments in pesos, reaping yields in pesos and beating the dollar, but then the dollar wakes up and the yield evaporates. By the time they want to hedge against the dollar, it is too late. This is not bad if one is an institutional investor or a market professional, but for the bulk of the population it is recommended to diversify in both. When we talk about diversification we are not referring only to the type of currency, but also to terms, industry, sector and country.

From another perspective, Fernando Pereira answered this same question, as seen below, considering what the government of Argentina should do to fight inflation and make wages work.

Pereira is a graduate engineer in stock market analysis and finance with 10 years of experience in traditional and cryptocurrency investments. Likewise, he is the author of the recent e-book launched by the Bitget crypto-assets platform, where he has been working since last year as content director and market analyst.

Unfortunately, it is difficult to imagine that Argentina can get out of the current hyperinflationary situation using the price freeze strategy that is being applied. Continuing with the aforementioned strategy only distorts the market, causing a false sense of control over the economy. However, in the long term, it is unfeasible for producers to continue producing to sell with such a low profit margin. That’s when we see a drop in supply and an increase in demand.

I think the best way out of this situation would be to raise the country’s interest rates, a bitter pill to swallow, as doing so would lead to rising unemployment and a recession.

Graph shows inflation record in Argentina between 1991 and 2023, showing increase in inflation between 2022 and 2023
Argentina’s inflation in 2023 is at its highest level since the hyperinflation of 1991. Source: TradingEconomics.

For Alonso, in principle there are three investment alternatives for Argentines this 2023: fixed term, Cedears and linked dollar ON. But he also considered that, for those who are willing to take more risk, It is a good year to invest in Argentine stocks and cryptocurrencies. Below, you can see his detailed explanation in this regard:

Fixed term: One of the commitments assumed with the IMF (International Monetary Fund) includes that the real interest rate be positive, in other words, that it be higher than inflation. That is why today we can see it at high levels. There are 2 alternatives, on the one hand “fixed term at a fixed rate” that are providing around 75% per year, which we can easily increase if we renew the fixed term month by month and reinvest the earnings in order to achieve a return of around 100% annual in pesos. On the other hand, there are the well-known UVA fixed terms that return inflation for the month plus 1% per year, which was the hedging instrument par excellence last year, but in recent months there has been a decline in them because some players Market leaders began to see risks in which INDEC begins to manipulate inflation data, added to the fact that LELIQs do not stop growing, which increases the fragility of the financial system. For this reason, it should not be trusted, since the current level of LELIQ is somewhat unsustainable and sooner or later the government that is in power will have to take action. Let’s remember that, throughout the history of Argentina, there have been various doubtful defaults in pesos, the most famous being the well-known BONEX plan where the state confiscated all fixed terms when it could no longer pay them. For this reason it is an option to consider, but definitely to watch as the risk of non-payment is somewhat latent.

Cedears (Argentine certificates of deposit): These are shares of companies listed abroad, which implies exchanging Argentine risk for United States risk, which is significantly lower. Not only that, but since it is an asset that is listed abroad, we are also obtaining exchange rate coverage, for which, in the face of a run on the dollar, a holder of Cedear does not flinch. Lastly, the year 2022 was not a good year for the markets, so those who enter capital this year will be able to do so with a discount premium. Even so, due to the Fed (US Federal Reserve) rate hike, many analysts expect a correction in the short term, but if the investor’s horizon is longer with a view to the medium or long term this should not influence a lot.

ON (negotiable obligation) of dollar linked: A bond is a government debt. Instead, an ON is a business debt in the vast majority of cases. The purchase of various ONs of companies is a good measure to mitigate risk, and in this case the well-known dollar link ONs specifically benefit from scenarios of a rise in the official dollar. This instrument is particularly attractive with a view to investing ahead of the elections. Because? If we review Argentine history, there were many exchange rate gaps and each and every time this gap was closed, but not because the blue dollar dropped, but because the official one rose. For this reason, although the government has the clear intention of flattening the official exchange rate during 2023, sooner or later the gap will close and these instruments may offer significant benefits.

Graph shows increase in the price of the parallel dollar traded in Argentina, Dolar Blue, between March 2022 and March 2023
This is how the dollar that is traded in the informal market in Argentina known as “blue” has risen in the last year. Fountain: Scope.

In addition to the aforementioned alternatives in order to hedge against inflation, investors with a lower degree of risk aversion should consider Argentine stocks as well as cryptocurrencies, without forgetting that, as a general rule, the higher the volatility of the asset, the lower the money. to place in it. [Es] a good year to invest pointing to the changes in cycles.

Argentine shares: We have a stock market that in recent months has gone through a bullish rally that has not been seen for years. It would not be unusual to expect profit taking in the short term. However, like every stock year, the main driver to watch will be the polls prior to the elections. The possibilities of a change of government are considerable and many Argentine stocks are at good prices at a historical level, which is why we are in a moment with characteristics prior to the rally that began in 2003, post-crisis 2001, and the rally of 2015 prior to a change of government. . Although the structural problems of the economy are far from being fixed, let’s remember that the stock market is moved by expectations, hence the famous phrase «buy on the rumor, sell on the news.

cryptocurrencies: We have a cryptocurrency market that is suffering from a purge for more than 1 year, which is totally normal in market cycles. What is extremely interesting is that the prices of the main crypto assets stopped falling and began to stabilize, finding very large support for them at these price levels. If we review what happened to the market after the 2017 rally, it was taking profits for 2 years and then re-entering the bullish cycle. Today the behavior is being very similar according to various metrics and it would not be unusual to expect an outcome similar to what happened in the past. The difference is that it is difficult to expect a stratospheric performance similar to previous years, at least in the crypto assets with the highest capitalization such as ether (ETH) or bitcoin (BTC), due to the simple mathematical question that they now enjoy a greater capitalization market and as a consequence the volatility and potential returns of the same may be a little lower. For the investor with patience, it is a good opportunity to enter positions in established projects, since right now projects without solid foundations are experiencing stressful situations, in the face of which many will cease to exist.

Pereira: “Bitcoin is the best investment option for 2023”

From a different posture, for Pereira, investments that are in pesos are “off the radar at the moment”. “It is difficult for Argentine investors to trust their own currency and allocate their reserves in [por ejemplo] fixed-income investments,” he estimated. With this, he rules out investing in fixed terms and other assets tied to the Argentine market.

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As a trader in financial markets for years, he maintains that “bitcoin is the best investment option for 2023”. Although he thinks that this is not the only alternative. He also believes that it is a good idea to invest in dollars or cryptocurrencies known as stablecoins that maintain a 1: 1 parity to the dollar:

The best strategy is to dollarize part of your capital, an action that can be carried out through dollar-linked stablecoins such as USD Coin (USDC) or tether (USDT), or by investing in deflationary assets such as bitcoin, which, in my opinion, is the best investment option for 2023.

graph shows bitcoin price record between 2011 and 2023
Currently the bitcoin price is trading 65% below its all-time high achieved in 2021. Source: TradingView.

As can be seen in the graph, bitcoin has appreciated in different cycles since its creation in 2009. Added to that, its Limited issue makes it “deflationary” unlike fiat currencies like the dollar. These factors, while its adoption continues to grow, make different specialists think that its price will recover from the setback it made since 2021, reaching a new all-time high in the medium or long term. Also, its high constant price volatility allows profits to be made in a short period of time. Therefore, it is used as short and long term investment.

How could the economy impact Argentines this year?

Regarding how the economy will impact this year, the economist Alonso contrasted that something different awaits the Argentines than people from other parts of the world. “On the international level, post-pandemic inflation has already begun to drop in various countries, however, in Argentina this is far from over,” he mentioned.

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He elaborated that “inflation did not decrease despite the various price control programs by the government.” He estimated that the market projects that the inflation continues with high levels close to 100% per year at least a large part of the year.

Added to this, he pointed out that in the face of inflationary situations it is not uncommon to see paritarias reopening (negotiations of labor conditions) successively throughout the year, which generate small increases in the wages of workers.

Observing the total economic situation of Argentina, he summarized that the outlook “is not very encouraging” for the country, nor for the pockets of Argentines. As a consolation prize, he indicated that we can only hope that 2023 will be a year of the end of the cycle, as has happened throughout Argentine history, where several of the worst years were those prior to those with the greatest growth and stability. “So this time, we hope that history repeats itself,” he concluded.

Similarly, investor Pereira estimated that he sees “a not very optimistic movement” for the Argentine economy with the price freeze issued by the government. However, he contrasted that at the international level a different spectrum is seen than can be positive for investors.

“We are in an end-of-cycle scenario of high US interest rates and the trend for 2023, especially for the second semester, is for more money to enter the aforementioned market,” Pereira highlighted. Given this, he foresees that there will be more and more money flowing towards the dollar and that it will be an opportunity to invest in stablecoins and bitcoin.

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