November 29, 2014
Black Monday in markets
Shares, bonds plunge in BA and New York
It was a black Monday yesterday in the markets as the reaction to the US Supreme Court’s decision not to take on Argentina’s appeal in its case against hedge funds sank in. Drops were registered in peso-and dollar-denominated bonds and in shares of Argentine companies on the Buenos Aires stock exchange and on Wall Street, while the illegal — or “blue” — dollar rose 20 cents.
The Merval benchmark stock index dropped 10.1 percent yesterday and closed at 7,235 points as disappointed share holders sold their papers after the news became known.
Drops were seen across the board but were led by a whopping 20.5-percent decrease in Edenor shares. At the same time, YPF shed 12.5 percent, followed by Comercial del Plata (11.6 percent), Galicia (10.9 percent), Pampa Energía (10.3 percent) and Telecom (10.1 percent).
The US Supreme Court decision not to hear Argentina’s appeal over its long-term legal battle with hedge funds came as a shock for most investors, who were largely expecting the justices to ask the Obama administration for its opinion on the case. Bond and share prices have been largely stable during the last few weeks, traders told the Herald yesterday.
“We didn’t see it coming. Values of shares and bonds have been stable so everybody was sure the Supreme Court would ask the US government for its opinion,” Alexander Zawadzki, a trader at the Schweber brokerage firm, told the Herald. “The effects of the news will continue to be seen over the next few days and I don’t see an immediate recovery. There were sharp drops on long-term bonds, which had the highest impact on the day.”
A similar scenario was seen on Wall Street, where Argentine companies that trade in the United States also experienced a steep drop yesterday. Edenor also led the declines in New York, dropping 14.6 percent, followed by YPF (11.9 percent), TGS (10.6 percent), Banco Francés (9.5 percent), Banco Galicia (8.2 percent) and Pampa Energía (6 percent).
GDP warrants — bonds that pay out an additional percentage based on growth — also reflected trader concern, dropping up to 13 percent. Long-term bonds were the most affected due to growths registered over the past few weeks, when traders speculated about the Supreme Court decision. The Par bond in dollars saw the largest decline with a 13.1-percent drop but it was hardly alone: Bonar 2017 decreased 6.2 percent, Discount in dollars 10.9 percent, Boden 2015 3.5 percent and Global17 8.7 percent.
A 20-cent growth was registered in the illegal or “blue” dollar, which closed at 11.85 cents, and on the blue-chip swap which rose 42 cents and closed at 11.52 pesos. Higher purchases were reported, traders told the Herald. Meanwhile, the official dollar remained stable at 8.15 pesos in banks and exchange houses.
“Argentina now has to decide if it pays US$1.3 billion or if it defaults,” Eduardo Fernández, a trader at the Rava brokerage firm, said. “There are different alternatives, all of which will help to cushion yesterday’s fall.”