12February20191Argentina:Thebehaviouroflocalmutualfunds;newLeliqs/depositratio(NEW)MutualfundsflowsanalysisAstheArgentineanpesoisstillfarfrombeingareserveofvalueforlocals,therewardtokeeplocalsallocatedinARS(evenintheshortterm)needstobeabnormallyhigh.LocalsusedtoinvestinLebacsuntilOctober2018,whenthecentralbankeliminatedtheseinstrumentsandintroducedLeliqs,whichareshort-termbills(7-daysmaturity),offeredonlytolocalfinancialinstitutions.Unabletodirectlyparticipateinthecentralbank’sauctions,localsstartedtoinvestintimedepositsandmutualfunds,whichalsoallocatemoneyintimedeposits.Additionally,withthenewmonetarysystem,higherrateshaveemerged(Leliqsstartedwith>70%rates)andlocalshaveincreasedtheirdemandforpesosforinvestingintimedepositsandmutualfunds.Thisshifthasgainedstrengthandweseethisincreaseddemandforpesostobethreatenedasweapproachthepresidentialelection.Thatbeensaid,webelievethataproperstudyoftheoflocalmutualfundsandthepotentialimpactonUSdollardemandiscriticalforanypre-andpost-Presidentialelectionscenario.Also,wealsoaimtounderstandtheindirectmechanismthroughwhichinvestorsoutsidethefinancialsystemalsobenefitfromthecurrentmonetaryframework(viaLeliqs).LATINAMERICASTRATEGYPleaserefertoimportantinformationattheendofthereportFOCUSEMERGINGMARKETS|LATAM12February2019AndreDigiacomoEM/LatamStrategist+551138413447LucaMaiaEM/LatamStrategist+551138413447GabrielGerszteinGlobalHeadofEmergingMarketsStrategy+551138413421BancoBNPParibasBrasilS.A.KEYMESSAGESNew:wehavetrackedalltheflowsintolocalmutualfunds.FlowsinArgentinaaremainlyfocusedonshort-termfixedincomefunds.Theirmaininvestmentvehicleisshort-termtimedeposits,whichonceinthecashbalanceofthelocalbanks,areabsorbedbythemonetaryauthorityviatheissuingof7-dayLeliqs.Duringlastyear’sturmoil,localswerebuyingdollarstomaintaintheirpurchasingpower,whichcausedtheAUMoffixedincomemutualfundstodecreasebyaround40%innominalterms.Thus,aproperstudyoftheoflocalmutualfundsandthepotentialimpactonUSdollardemandiscriticalforanypre-andpost-Presidentialelect...
