JP Morgan's advice to investors as Argentina faces "election noise" and lower foreign exchange inflows.

While it said it has a constructive stance on Argentina in the medium term and highlighted the decline in inflation, JP Morgan recommended that its clients reduce their investment exposure to the country's peso-denominated debt , at least until the elections. That is, they should reduce their holdings of Argentine Treasury bonds.

According to the report titled "Argentina: Taking a Breath," the major U.S. bank praised the strength of the disinflationary process and the accumulated fiscal improvement, but noted risks associated with the decline in revenue recorded by the agricultural sector, the continued outflow of foreign currency due to tourism, and electoral uncertainty , which it believes could worsen in the coming months.

"We prefer to reduce risk for now," said JP Morgan , the same bank that calculates country risk , in a context marked by the proximity of elections and the end of favorable seasonality.

Wall Street. The country risk indicator, compiled by the American bank JP Morgan, continued to rise. (AP)

Illustrative photo

According to the analysis, " with the peak in agricultural income already passed , the probability of continued foreign currency outflows due to tourism, possible electoral noise and a certain underperformance of the peso , which motivates a currency intervention through derivatives, we prefer to take a step back and wait for better entry levels to reposition ourselves."

The strategy previously recommended—in April, with the end of the currency controls—consisted of acquiring LECAPs and hedging them through the cash-settlement dollar market ( CCL ). This resulted in a 10.4% profit, net of transaction costs, thanks to the stability achieved by the Central Bank following the implementation of the new exchange rate regime in mid-April.

However, JP Morgan has now changed the strategy it recommends to its clients, justifying its decision to recommend profit-taking by pointing out that the extraordinary income from agricultural exports "is already behind us" and that tourism is putting pressure on demand for foreign currency.

The proximity of national legislative elections was added as a factor, which could increase the volatility of local assets.

This reduces the peso's margin of appreciation , and the carry trade strategy becomes more expensive , which JP Morgan believes should be returned to when the political and macroeconomic context presents fewer risks.

In any case, the report highlighted the progress made by Javier Milei 's government in economic reforms.

JP Morgan emphasized that in Argentina, "the disinflation process has been solid , with May inflation decisively breaking the 2% threshold."

He also praised the easing of capital controls, saying that this "eliminated some key risks to the stabilization program." He also praised "the strong fiscal effort, with a cumulative primary fiscal surplus of 0.8% of GDP for the year."