Standard & Poor’s upgraded Argentina’s credit rating from CCC+ to B- on Thursday, igniting a surge of optimism in the local market. Dollar-denominated sovereign bonds experienced significant increases, while the country risk index fell dramatically to 444 basis points, marking its lowest point since May 2018. The local S&P Merval index experienced an increase of over 7% in hard currency, while Argentine ADRs surged by as much as 11.5%, with bank stocks taking the lead. The upgrade follows a similar rating action by Fitch Ratings in early May and reinforces investors’ perception of a gradual reduction in Argentina’s risk profile. Driven by this momentum, foreign-currency securities increased by as much as 3.5% in the local market. Dollar-denominated bonds experienced an increase of up to 3.3%, with the Global 2041 leading the way, followed by the Global 2038 at +2.8%, the Global 2035 at +2.7%, and the Bonar 2041 also at +2.7%.
Argentine stocks traded abroad experienced an increase of nearly 12%, with BBVA leading the way at +11.5%, followed closely by Telecom at +11.4%, Grupo Supervielle at +11.3%, and Grupo Financiero Galicia at +9.9%. The S&P Merval index experienced an increase of 5.68%, reaching 3,336,280.27 points, while in hard currency, it advanced by 7.3% to 2,241.87 units. Local stocks experienced an increase of up to 10%, with BBVA leading the charge at +10.2%, followed closely by Grupo Supervielle at +10.1%, and Grupo Financiero Galicia at +8.6%. In its report, S&P indicated that the upgrade signifies diminished economic vulnerability, a steady enhancement in external liquidity, and an improvement in the country’s capacity to fulfil its financial commitments.
The agency emphasised the buildup of international reserves, the strengthening of fiscal balance, and the diverse financing sources that have allowed the government to fulfil its debt obligations. However, the rating agency cautioned that the Argentine economy continues to be susceptible to possible external shocks and macroeconomic challenges in the upcoming 12 to 18 months. Even so, the agency’s baseline scenario posits that the country can navigate these tensions without defaulting or experiencing a forced debt restructuring. “Argentine sovereign bonds are currently trading with spreads near 500 basis points, a level we consider high for a country with a B- rating. In the near term, we see room for a compression toward the 400-450 basis point range,” said Daniel Chodos.
A report indicated that the likelihood of an upgrade by Moody’s in the forthcoming months “remains high.” The document stated “We anticipate a swift convergence of the Argentine yield curve towards that of Ecuador, particularly following the recent action by a second major rating agency that upgraded the sovereign from the CCC-rated zone. The table below presents the anticipated gains across various convergence scenarios.”