Investing in the Argentinean Merval is one of the possibilities that Argentinean investors have when they want to keep their money safe from the voracious Argentinean government. It is true that even so they will have to pay the money earned doing trading but at least this way they will do so after reaping some profits. Well, all this considering that the value of the Argentinian peso does not fall faster than the rate the stock market rises.
What should you do if you were an Argentinean investor?
Is it good or not to invest in the Merval?
The truth is that seeing the companies that form it you do not really think of investing there since the same as the Spanish stock market we find companies related to the state and not much of an advanced technological society.
However, this is not a reason to stop investing or not.
What it is interesting to us is if we can win and it does not matter if it is done with the BBVA Banco Frances (their version of the Spanish BBVA) or with Amazon.
The issue is to win and though those Argentinean companies belong to “old fashioned” sectors it does not mean they do not have profits or dividends.
To win in the stock market we need to increment our capital or having recurrent dividends.
What does Merval offer us?
Well, without the dividends issue, with simply looking at the chart, we can see why the Merval gives us some interesting capital returns, apparently.
The question is that if those nominal profits are being translated in real profits and for that we have to see the currency exchange of the Argentinean peso compared to the us dollar or the euro.
Counting on that it is possible that things change significantly.
For example, since November 2007 to 2017, the Merval has gone from quoting 2,360 to 30,200 in November, a return of more than 1,000%, having multiplied its value by 11.79, approximately.
However, the Argentinean peso has gone from 3.38 with the USD to 17,48 nowadays, having depreciated its value by 80%.
Well, with these numbers, we can see that despite this monetary depreciation the Merval is still in green.
In other words, the Merval would be 2.35 times more valuable now than in 2007 November, which is not bad at all.
If we can compare it with the nasdaq, the Merval is still behind in return but if we compare it with another markets like the Spanish IBEX 35, it has behaved much better.
Nonetheless, we have to remember that Argentina is full of price controls and there are lots of limits to commerce.
Actually, the stock market is one of the best ways to try to escape that situation of impoverishment due to high inflation.
Other ways the Argentinean public use are Bitcoin or foreign currencies, like the dollar.
It is clear that which such measures as price controls it is impossible that the Argentinean peso do not keep decreasing its value, even against sick currencies like the dollar or the euro.
Is it good idea for the Argentineans to invest in the Merval?
In the beginning it seems that yes.
After all it is much better to do so than to keep their savings in their national notes.
As for the main competitors in this regard, the dollar and Bitcoin, it is clear which is winning the “war” the last years, although we have to see how it all ends. Without a doubt the Bitcoin market is very dangerous.
Another interesting alternative for the Argentinean investors would be to invest in international stock markets, like those of the United States, Germany or Japan, in which they could have both returns in currency and capital, as well as dividends.
Regarding the Merval, you can see that even I chose 2007 to compare, the next year the market collapsed, along with those of the rest of the World, which shows us it was a very bad moment to invest, and even so, 10 years later; this index was multiplied by almost 12.
For sure it would have been much better to have invested in 2008 or 2009, when it was much closer to 1,000 points, but we are not future tellers and it is very difficult to be right in moments like that.
The important thing is that even with the worst financial crisis in the last 50 years in the West in between, the Merval has ended up going much higher 10 years later.
Consequently, it is a good example that shows us that the best thing we can do in the investing world is to bet for the long term, although some examples, like the Greek of Japanese of the last 30 years try to prove us wrong.
Investing in the Merval nowadays?
Well, by the end of 2017 we have a clear and spectacular bull market that has multiplied the Merval by 10 since 2013, after two crises in 2008 and 2011, which stopped for a while the impressive rising ratio.
In general it is a very complicated question to discern, but I am inclined to think that it is still a good idea to invest in the Merval, especially if we take into consideration the long-term behaviour of it, even if we have the risk of confronting a new major bear market in the coming months or years.
The risk of bear market or strong correction is quite high, especially if we see that the Merval has had a long streak of winning years, which could be an indication that it could be overbought.
Anyhow, the way this stock market raises is so wild that even a bear market of 70% will stop it from doing it for a short while. If everything continues like until now it would take just a short time before the Merval reaches previous highs.
What is more, in the case of having a major correction, that would be the perfect scenario to invest in this or any other stock index.
Imagine that just now it fell from 29,000 points to 16,000.
That would be a good opportunity to invest in a more efficient way, if there is such a thing in the world of investing as “efficient”.
Other options to invest in Merval: trading
You probably have seen some other products offering the chance to invest in the Argentinean Merval, whether futures or CFDs.
Well, I must remind the readers that those products are not appropriate to invest but to trade, which is a different thing. Although, trading is not something that majority of investors should try since it is much more complicated that it seems.
The problem with trading futures or CFDs related with Merval is that, trading is a very complicated activity in itself, and in second place, we are taking about markets with very low liquidity and, therefore, not appropriate and dangerous for trading.
Nevertheless, and saying something favourable to trading the Merval, I have to say that its trend is so strong and clear that it gives us a small advantage which can, in part, compensate the problems that we can encounter with slippages or liquidity.
For example, dealing in CFDs we could trade similar assets like Merval, like IG Markets, Global X MSCI Argentina CFD.
With that CFD we can use leverage up to 4 to 1, although as we can see in the screenshot, the spread is quite high, of about 20 points.
With the current price that means 0.5% of it, with which we can see that our margin to trade properly is quite limited.
For example, there are a lot of people who trade CFDs in a very risky way, without stop loss. Using this MSCI they would go belly up when it fell 25% but there is always a good chance the index is going to keep rising so some end up lucky.
Although if we are going to use stop loss orders it is not very easy to trade with a spread of 0.6% because with a leverage of 4:1 we would be paying around 2.4% of our capital just by entering the trade.
We could try to trade Merval individual CFDs as well, but I do not think it is a good idea since the spreads are similar to the last case.
Regarding futures, the most professional way we have to do trading, I must say that as for what we have in the market, as we see in Rofex, we get a spread of 30 points, in which case we get better conditions to do trading, although very far from the main futures contracts of de developed world.
However, it is also a quite illiquid market, with the spread increasing to 60 points usually; a 0.2% of the price, and therefore that would be our true cost of trading.
In this case, it is not that unthinkable to think in doing trading in this index, but again, it is not efficient at all, and if we compare it with other indexes or futures, it leaves much to be desired.
Nevertheless, I repeat, the good thing about Merval is its undisputable bullish trend, which is a blessing to do trading, and despite the high cost of doing it, it is very good.
In this sense it shares some similarities with such assets as the best stocks, Bitcoin or exotic currencies like the Turkish Lira or the Mexican Peso.
Mi recommendation is that despite this it is not better to do trading with this index since trading is a very difficult thing to master anyway.