Argentina’s debt has long been out of favour among many international investors, with various crises resulting in two defaults in the past few decades. But in the past year or so, an astonishing turnaround has taken place.
In the country’s 2023 elections, voters in Argentina initiated a trend that subsequently echoed across the globe in last year’s bumper election calendar: voting out the incumbent. Enter Javier Milei. Since taking office just over a year ago, Milei has moved swiftly to fix chronic imbalances and inefficiencies and shift Argentina’s economy onto a sustainable path. The sweeping (and ongoing) programme of reforms has been quick to take effect, as we chronicled throughout the year in our EM Debt Indicator – just a few excerpts are shared below:
Unsurprisingly, this has put Argentina back on many investors’ radars. It has become an unlikely poster child for emerging markets.
Lessons for investors-Warning: look away now if you did not invest in Argentine debt in 2024.
Argentina’s external (US dollar-denominated) sovereign debt had an exceptional year in 2024. Behind the flagship EM hard currency debt market’s overall return of 6.5%, dispersion was wide; Argentina was a notable outlier, as shown in the table of the top and bottom three markets in the JP Morgan EMBI.
| Lebanon | 118.4% |
| Argentina | 103.1% |
| Ecuador | 70.7% |
| Colombia | -1.8% |
| Senegal | -4.4% |
| Venezuela | -5.7% |
Past performance does not predict future returns; losses may be made.
Source: JP Morgan, EMBI index. 31 December 2024. For further information on indices, please see Important information section.
It is worth noting that a key difference between top-performer Lebanon and Argentina is that the driver of Lebanon’s debt rally related to geopolitical headlines and domestic politics, and Lebanon’s debt is still trading at distressed valuations. In contrast, Argentina’s stellar performance reflects the positive shift in fundamentals, i.e., is more structural in nature.
While finding the ‘next Argentina’ is going to be tough – behind this remarkable transformation story lies a unique combination of factors (not least the strong mandate for aggressive fiscal tightening that the Argentine population awarded to Milei) – positive shifts are taking place across emerging market economies.
Motivated by economic crises and external funding pressure (such as the market turmoil seen in 2022) policymakers have responded with orthodox policymaking and bold reform packages, in many cases attracting significant multilateral support as a result. Examples include Kenya, Nigeria and Egypt, and Côte d'Ivoire – with Paraguay among countries to have been upgraded to investment grade by at least one rating agency. However, these rarely make the mainstream headlines.
One takeaway here is that conviction is key when investing in this diverse and under-researched investment universe. Conviction to invest where others fear to tread but where careful fundamental analysis reveals that risk is being amply rewarded. Conversely, conviction to stay away from markets where policy is heading in the wrong direction and the market is underestimating fiscal risks. And conviction to respond accordingly to a seismic shift in investment case – such as that seen in Argentina.