October 27, 2016 / 10:25 PM / 3 years ago

For exposure to Argentina, Itau says look to banks and energy

BUENOS AIRES, Oct 27 (Reuters) - The banking and energy sectors present the most opportunities for foreign investors looking for exposure to Argentina as its economy opens after years of isolation, Itau BBA’s senior vice president of research for Latin America said on Thursday.

A new capital markets reform likely to be presented to Congress soon will help foreign investors access Argentine stocks and an expected upgrade from frontier to emerging market status next year will also help, Ricardo Cavanagh said in an interview.

“You will have a lot of volume growth in real terms over the next two years. That will need stronger capital,” Cavanagh, who oversees research of southern Latin American and Andean countries from Buenos Aires, said of Argentine banks.

“The energy sector is another nice one,” he added citing Pampa Energia SA, a stock with shares up 78 percent this year.

While Brazil-based Itau BBA recommends buying shares of Telecom Argentina SA amid reforms in the sector expected to be implemented in 2018, telecoms broadly offer fewer opportunities for investors, Cavanagh said.

“With the banking sector and the energy sector the attraction is that both are far behind in Argentina,” he said. Investors are eyeing Argentina’s Vaca Muerta shale fields, thought to have one of the world’s largest tight gas deposits, in a country that is a net energy importer.

“With telecoms it’s more of a growth story associated with a new set of regulations in Argentina, but you are starting from a higher level,” he said, explaining that mobile and cable penetration is quite high in Argentina.

Shares of Telecom Argentina, not considered an especially liquid stock, are up 28 percent on the year. Argentina’s broader Merval stock index rose 54 percent so far this year. Telecom Argentina was acquired in March by investing group Fintech.

Despite the investor optimism for Argentina nearly a year into center-right President Mauricio Macri’s term, the economy is still in recession and an expected boom in initial public offerings will likely not occur until 2018, Cavanagh said.

“I would imagine that companies will wait to ensure a couple of quarters to see the economics are improving,” he said. (Reporting by Caroline Stauffer; Additional reporting by Walter Bianchi; Editing by Lisa Shumaker)

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