UPDATE 1-Third Point's Loeb takes stakes in Fibra Uno, YPF, Royal DSM

Fri Jul 18, 2014 1:20pm EDT

(Adds more comments from letter)

By Sam Forgione

NEW YORK, July 18 (Reuters) - Daniel Loeb, head of hedge fund firm Third Point LLC, said in his quarterly investor letter dated Friday that he expects market volatility to continue and that he is optimistic on Argentina.

Loeb, an activist investor, said Argentina is likely to reach an agreement with its holdout creditors by yearend and that his $14 billion firm has taken a stake in Argentine oil company YPF SA, in addition to stakes in Mexican REIT Fibra Uno and in Dutch life sciences company Royal DSM.

Loeb said an agreement between Argentina and its holdout creditors would "undoubtedly benefit the Argentinian economy".

"We hope to uncover additional investment opportunities in Argentina as it emerges from its long malaise," he said.

Argentina defaulted on roughly $100 billion in sovereign debt in 2002. Most of its creditors subsequently reached a deal for reduced payments, but holdout creditors sued and won a court-ordered judgment of $1.33 billion plus accrued interest.

Loeb cited Japan as his firm's "biggest source of losses" this year but said that he still sees "compelling" opportunities in the country.

"We think recent macro headwinds will become tailwinds again towards yearend but remain vigilant about inaction. A failure of Abenomics would likely mean that it is time to move on," he said in reference to Japanese Prime Minister Shinzo Abe's stimulus policies.

On his firm's stake in Fibra Uno, Loeb said macroeconomic conditions in Mexico were "very attractive" following government reforms and that stronger economic growth would drive up rent levels for Mexican retail, office, and warehouse properties.

Loeb said near-term trends were positive for both Royal DSM's nutrition and materials businesses.

He said broadly that having "dry powder on hand," which typically refers to cash, would be "increasingly useful" toward yearend.

Loeb's main Third Point Offshore Fund returned 6 percent during the first six months of 2014, according to the letter. That performance beat many rival managers but trailed his own performance last year. The fund rose 2.6 percent in the second quarter, the letter said. (Reporting by Sam Forgione; Editing by Meredith Mazzilli; and Peter Galloway)