December 18, 2019 / 12:55 AM / 2 months ago

Vanguard not taking sides on Argentina, sees opportunities in Latin America

NEW YORK, Dec 17 (Reuters) - Fund manager Vanguard has not picked sides in the battle to restructure Argentina’s debt and does not have confidence in some of the proposals by creditors, its top emerging markets portfolio manager said on Tuesday.

Dan Shaykevich, principal at Vanguard’s emerging markets and sovereign fixed income group, said debt relief for Argentina should come hand in hand with structural reforms or there will be a risk that it will not be sustainable even after restructuring.

“We are very skeptical of any solution that does not involve the resumption of the relationship with the IMF,” he said.

Argentina’s new government is gearing up to restructure about $100 billion in debt, nearly half of which is tied to a $57 billion agreement with the International Monetary Fund.

Creditors are splintering into at least three groups ahead of restructuring talks. Vanguard took a “manageable” loss when Argentine debt re-priced sharply lower in August.

“We’ve had some conversations (but) we have not officially joined any credit groups,” Shaykevich said. “Some of the proposals that have been floated ... we don’t have confidence in those actually being effective.”

Shaykevich said Argentine foreign currency debt is “fair to a little cheap at these levels,” though the country’s dollar bonds rallied on Tuesday on a government proposal for higher taxes on agricultural exports and to tax foreign assets held abroad.

Vanguard does see opportunities elsewhere in Latin America, even if Shaykevich said after strong returns in 2019 next year will be more about dodging potholes in emerging markets than anything else.

“There is a lot less room for error and we do expect the active edge in EM over the next 12 months to be more about avoiding losers than about picking winners,” Shaykevich said, singling out Ecuador as a concern.

“Structural challenges are very serious and at some point the market is going to start getting concerned about whether the prudent policy will be maintained” by the next administration.

Ecuador reached a loan agreement in February with the IMF but efforts to reduce its fiscal deficit were initially met with social unrest. Reassurances of the sustainability of its IMF deal have helped bonds bounce back.

Mexico and Brazil, the region’s largest economies, could prove smart bets in 2020, Shaykevich said.

He said Vanguard’s investments in Brazil made good returns this year and “Brazil is now much more fully priced,” though he sees “a pretty strong tailwind for Brazilian corporates.”

Mexico, he said, has been a safe haven despite investors initial concerns over spending by the leftist government of Andres Manuel Lopez Obrador.

“The fiscal management has been more prudent than what a lot of investors feared,” Shaykevich said. (Reporting by Rodrigo Campos; editing by Grant McCool)

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