The bond issue was able to go ahead after a US judge overturned an injunction stopping the country from raising funds.
Such was the positive international response to the offer that Argentina expected to raise up to $15bn (£10.3bn, €13.1bn) but actually attracted bids of more than $65bn.
The country was able to raise the debt via four maturities, with coupons ranging between 6.25% for the three-year issue, and 7.625% for the 30-year paper.
For Fleming, the uncertainties surrounding the country’s data, fundamentals, and potential for further issuance, means that the potential reward is not worth the very real risk.
"We see more compelling risk reward opportunities in better rated emerging market debt elsewhere.”
Sketchy data
“There are a number of risks facing some of the bonds,” Fleming said. “Firstly, Argentine data is sketchy.
“One of President Macri’s key reforms is to ensure the Argentine government’s statistics office is fit for purpose, but these reforms are only set to be completed at the end of this year. Until then – and potentially after – statistics will remain unreliable.
Fiscal deficit
“Secondly, we see the fundamental backdrop as challenging. Whilst the new government is aiming for a balanced budget in 2019, it is currently just under 5% of GDP. Moreover, a current account deficit of 2.6% of GDP heightens vulnerabilities, with foreign direct investment unlikely to pick up unless broader fundamentals stabilise.
“Whilst there will be support and optimism for Macri’s administration, the $16.5bn debt raising isn’t sufficient to finance the fiscal deficit.”
Threat to investors
Fleming said there may be better opportunities to allocate to the long-dated emerging market debt in future, but for now he said the challenges facing Argentina and other countries within South America posed too much of a threat to investors.
“Thirty years is a long time when it comes to Argentinian debt repayments, with defaults in 2001 and 2014,” he said.
“Given the social impact of electricity prices rising by 500% and inflation anticipated to be around 30% for the next two years, and the developing situation in Brazil (Argentina’s largest trading partner), there will be ongoing domestic tests of how cohesive the ‘Cambiemos’ political alliance can be.
“As such, we see more compelling risk/reward opportunities in better rated emerging market debt elsewhere.”
Short silver lining
However, while the long-dated bonds look challenged, Fleming said short-dated paper may offer an opportunity to investors seeking higher coupons.
“So far, the best performing tranche is the three-year bonds” he said. “The market is right to maintain its enthusiasm for shorter dated bonds; Macri’s political authority will allow for the refinancing of these.”
