Argentina modified rules governing mutual fund investments in locally traded securities of foreign companies in a bid to increase investment in local companies and curb capital flight.
The regulator reduced the proportion of securities known as Cedears, which are peso-denominated shares and bonds of foreign companies, that mutual funds can hold to 25 percent from 75 percent, as the assets are now considered to be a foreign investment, according to resolutions published in today’s official gazette.
“It’s understood that it’s appropriate to limit the maximum rate of investment in that asset class to ensure proper channeling of domestic savings into productive development,” according to the resolution.
The measure is part of President Cristina Fernandez de Kirchner’s efforts to bring dollars back to the country and curb capital flight as the peso is forecast to weaken at the fastest rate in the world and reserves, which the country uses to pay debt, fell 13 percent in the past 12 months to $41 billion. She also made insurance companies repatriate foreign investments and forces them to invest part of their portfolio in government sponsored companies and projects.
The resolution also states that the securities that don’t trade in the local exchanges must be valued according to the closing price in the market where they trade using the official currency rate published by state-controlled Banco de la Nacion Argentina.
“Most don’t trade,” in the local exchanges, said Luis Celasco, who manages 1.7 billion pesos ($333.2 million) of Argentine debt at RJ Delta, a unit of Raymond James Financial Inc. in Buenos Aires. The change in valuation “Can cause a loss on the portfolio and volatility.”
Each business day, investment funds will have to provide the regulator with details of the composition and valuation of their portfolios, the resolution says.
Any new restrictions that require mutual funds to sell some of their Cedears could be an attempt by Fernandez to ease pressure on a parallel exchange rate that weakened to a record 8.48 per dollar yesterday, according to Jorge Piedrahita, chief executive officer of New York-based brokerage Torino Capital LLC. Fernandez has imposed restrictions on dollar purchases since her re-election in October 2011 to stem capital flight.
“If you force a liquidation of those, you generate dollars,” said Piedrahita. The net effect would be an increased supply of dollars, which should ease the pressure on the parallel rate, he said.
Telephone calls to the securities regulator’s press department seeking comment on the resolution went unanswered.
The peso fell 0.1 percent yesterday to 5.102 per dollar in the official market. The gap to the parallel rate surged after the nation on March 18 raised the tax on credit and debit card purchases abroad to 20 percent.
On March 20, Fernandez called a meeting with Vice President Amado Boudou, Finance Minister Hernan Lorenzino and central bank chief Mercedes Marco del Pont to discuss the drop in the parallel peso, according to Buenos Aires-based newspaper Clarin.
Cedears include 27 corporate bonds including debt issued by Wal-Mart Stores Inc. (WMT:US) and Coca-Cola Co., and 220 shares of companies including Apple Inc., BP Plc (BP/), Citigroup Corp., and Pfizer Inc., according to Deutsche Bank AG, which establishes the list.
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