Citi highlighted opportunities in three stocks after Argentina devalued its currency by 50%: oil and gas firm YPF and lenders Grupo Financiero Galicia and Banco Macro. The drastic devaluation was part of a new economic plan announced by libertarian President Javier Milei, who took office earlier this week. One U.S. dollar will now fetch 800 Argentine pesos, up from 400 pesos. The investment bank said that while the devaluation happened faster than expected, it “may send a strong message about how engaged Milei is to the structural adjustments which may follow.” Citi believes the changes are likely to include further increases to heavily subsidized fuel prices, which have risen 65% since August. The Wall Street bank has a “buy” rating on majority state-owned YPF’s U.S.-listed stock, with a $20 price target, representing a 16% upside potential to the current price of $17.26. YPF YTD line The fuel price hikes in Argentina would have “some positive impact diluting [YPF’s] OpEx and CapEx” costs when converted into dollars, according to the research note authored by Citi analysts led by Andrés Cardona. The analysts reiterated their expectations for adjusted profits to rise 23% year over year in 2024. However, Citi cautioned there are still “risks” to its forecast, such as further political involvement in YPF, since the state owns a controlling 51% stake. Argentine banks Citi said the currency devaluation’s impact has been “neutral so far” for the banking sector. Buenos Aires-listed shares of Banco Macro and Grupo Financiero Galicia are rated “neutral” by Citi, as the investment bank expects inflation to remain high and economic conditions to initially worsen under the austerity plan before improving. The U.S.-listed shares of the two lenders have also run up by more than 40% since Milei’s election, on hopes of an economic turnaround in the medium term. So now, the Wall Street bank expects Argentina-listed shares of Galicia to stay flat over the next 12 months and Macro’s shares to rise by 6.8%. YPF, Galicia and Macro are all top 10 holdings in the Global X MSCI Argentina ETF and comprise nearly 18% of the fund. Citi has warned the economy could suffer in the short term but said the government’s measures were necessary to curb inflation and stabilize the economy. Argentina has run fiscal deficits in 113 of the last 123 years, which its finance minister said was behind the recurring economic crises hitting the country, Reuters reported him as saying . “We’re here to solve this problem at the root,” Economy Minister Luis Caputo said. “For this we need to solve our addiction to a fiscal deficit.” The International Monetary Fund Managing Director Kristalina Georgieva endorsed the plan, calling the measures ” bold ” and an ” important step toward restoring stability. ” — CNBC’s Michael Bloom contributed reporting.
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