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报告摘要

Argentina: Local Mutual Funds and USD Demand Analysis (February 12, 2019)

Core Content

This report focuses on the behavior of local mutual funds in Argentina, particularly in the context of the country's monetary policy and the demand for US dollars. It also highlights the central bank's (BCRA) recent measures to control the growth of Leliqs and the broader implications for capital flight and international reserves.

Main Points

Local Mutual Funds Behavior

Local mutual funds in Argentina have shown a significant shift in investment patterns, with a strong focus on short-term fixed income funds.
These funds primarily invest in short-term time deposits, which are then absorbed by the monetary authority through the issuance of 7-day Leliqs.
Inflows into these funds have increased substantially since the introduction of the new monetary regime, reaching USD2bn.
The performance of these funds has improved by 21.7% since the new regime began.

Impact of Market Turmoil

During last year's economic turmoil, locals were buying US dollars to maintain purchasing power, which led to a 40% decrease in AUM of fixed income mutual funds.
However, there has been a recovery since October 2018, with inflows and performance rebounding.

BCRA's New Leliq Limits

The central bank introduced new Leliq limits (Law No. 6647 A) to prevent excessive dollarization and control systemic risk.
Financial institutions are now limited to a 65% Leliqs/deposits ratio or 100% Leliqs/regulatory minimum capital.
The limits are phased in:
- By 28-Feb-19: Leliqs should not exceed 100% of the RC from Jan-19 or 100% of monthly average of current deposits in local currency from Jan-19.
- By 31-Mar-19: Leliqs should not exceed 100% of the RC from Feb-19 or 80% of monthly average of current deposits in local currency from Feb-19.
- By 30-Apr-19: Financial institutions must comply with the 65% Leliqs/deposits ratio or 100% Leliqs/regulatory minimum capital.

Capital Flight and Foreign Asset Formation

Capital flight in 2018 reached USD19.2bn, compared to USD15.7bn in 2017 and USD6.4bn in 2016.
In December 2018, foreign asset purchases remained high at USD2.5bn, with a 12-month cumulative total of USD30.2bn.
Non-resident net flows were negative in December, at USD-0.6bn, continuing a trend since April 2018.
Non-financial private sector foreign asset formation reached a new high, contributing significantly to the overall capital outflow.

USD Demand and FX Market

Despite a slowdown in November, USD demand remained high, with net demand for US dollar notes at USD0.4bn in December.
Time deposits (M3) increased in response to the drop in USD demand, showing a proportional relationship with the Leliqs stock.

International Reserves

Gross international reserves totaled USD67bn, including USD14.6bn in private sector US dollar deposits.
Net liquid international reserves are approximately USD5.2bn, after accounting for the IMF loan, FX swaps with China, and other adjustments.
The IMF loan and FX swap deal have played a crucial role in maintaining reserves, but net flows remain negative, indicating continued pressure on the currency.

Key Information

Total AUM of fixed income funds: ARS310bn (USD8.4bn).
Leliqs/deposits ratio: 65%.
Capital flight in 2018: USD19.2bn.
Non-resident portfolio flows (net): USD-0.6bn in December.
USD demand in December: USD0.4bn (gross demand: USD1.3bn).
Average USD demand per client: USD1,330 in December.
Net liquid international reserves: ~USD5.2bn.
Gross international reserves: USD67bn.
Foreign asset formation (non-fin private sector): USD30.2bn in December 2018.

Conclusion

The analysis underscores the importance of understanding the behavior of local mutual funds and their impact on USD demand in the context of Argentina's economic and political environment. The central bank's new Leliq limits are a positive step toward stabilizing the financial system, but capital flight and USD demand remain significant concerns. The sustainability of these trends is questionable, and the recovery of mutual funds may be driven more by external conditions than by internal improvements. Argentina continues to face pressure on its reserves and systemic risks from high levels of dollarization and speculative inflows.