Investments

Commentary

After Turkey and Egypt, this session discussed Argentina: have the shock devaluation and the rise in interest rates had the desired effect of making the currency more convertible, and starting the economy on the – slow and painful – road to recovery?

As in the other two cases, the response was one of guarded optimism. Business appears to be holding up, and the flow of currency out of the country has been improving. Also, as in the other cases, the exchange rate has stabilised. This does not mean there are no issues and everything is plain sailing: the Argentine consumer is going through a very difficult period. But one – Argentinian – participant said the pain is being accepted, at least for the time being. Inflation has started to come down: to put it in perspective, in September 2024, it had come down to an annualised rate of 209%, against 237% in August (source: BBVA). The central bank’s goal is 18%, and participants are budgeting for something between 30% and 50% next year,

Of course, this is Argentina, so nothing is simple:

• Foreign currency remittances have improved – for current imports, i.e, ones since December 2023.
• Many imports from before 2023 still cannot be settled. Various options exist:
  • BOPREAL bonds: these are three series of US dollar denominated bonds issued by the Argentine government, which will mature in October 2027 (series 1), June 2025 (series 2) and May 2026 (series 3). At maturity, the dollars can be remitted to settle import invoices, or, for series 2 and 3, dividends. These bonds can be sold in the secondary market, for a haircut which is usually about 30%. There has been talk of a new series specifically for old invoices.
  • Blue chip swaps: these involve using pesos to buy USD bonds, which can then be sold in dollars. The haircut on selling these varies: it has been as high as.....

Commentary

Brazil never disappoints: the term “complex country” applies to it in nearly every respect.

Apart from the usual updates to the constantly changing environment, the purpose of this call was to see whether there is any improvement in the economic situation (inflation has recently been even higher than usual), and whether there is any visible impact from  the recent political turmoil and change of government.

The bottom line is that it is very much business as usual. The Brazilian economy continues to perform well, even if inflation persists and interest rates remain high. However, inflation and interest rates do seem to be levelling off, and the BRL has been relatively stable recently. The country remains a main engine of growth for the LATAM region, and most participants have significant operations there – though everyone finds it to be a tough and highly competitive market.

Brazil is continuing its efforts to simplify its complex tax laws and currency regulations: most people are managing to do cross border intercompany loans, both in and out, and the taxes are being reduced or eliminated. In the meantime, of course, there are still some significant taxes on some types of transactions, and daily operations remain burdensome and complex.

The country is also making big strides in electronic payments: boletos are widely used, and come participants are beginning to use PIX, at least for receipts. Electronic boletos are increasingly supported by even the international banks.

Banking in Brazil is very competitive: many participants use Citi, with varying levels of satisfaction, while JPMorgan are viewed as being aggressive and increasingly

Commentary

Thailand is a large and relatively prosperous country, with an area close to that of France and a population of nearly 70 million. It has a long tradition of fierce independence – it is the only country in the region which was never colonised. Today, the country participates actively in the global and regional economy – it is a member of ASEAN, but it retains a distinctive approach.

The result is a country which is modern and business friendly, but which continues to present some challenges. Generally, our participants find that it works: they are able to do cross-border funding into, and out of, Thailand, and include it in various cash pools. But there are remnants of FX controls – recently relaxed – and it can be challenging to know exactly what the rules are. 

Main highlights:

• It is easy to convert Thai bhat (THB) into foreign currency, usually the USD. Traditionally, there have been documentation requirements, but many participants find these are being relaxed.
• During the Asian crisis of 1997 to 1998, Thailand forbade the remittance of THB out of the country. This is now allowed, but apparently for the settlement of THB denominated invoices: the consensus was that it.......continues