It has been nearly three months since Argentine markets crashed, with the S&P Merval Index falling 48% (in dollar terms) on Aug. 12. The carnage was a reaction to primary election results in which now former President Macri was defeated by left-leaning Alberto Fernandez and his running mate, former president Cristina Kirchner. The primary was a rejection of the conservative Macri's austerity measures and a harbinger of the general election results on Oct. 27, when Macri lost.
Argentina is once again in an economic mess, but this is not the first time. The prospect of returning to past Peronist interventionist/government control policies has driven foreign capital out of the country, and most won't touch it with a 10-foot pole.
As I wrote in August, what really caught my eye about the Argentina situation was the plight of farming and real estate name Cresud (CRESY) , a stock I have owned on and off for the past umpteen years. It fell 38% on Aug. 12 to a then 10-year low and since then has dropped another 21%. CRESY now trades at levels not seen since the 2008-2009 market crash.
CRESY has always been a sum-of-the parts story, but one that is situated in a part of the world that is not all that friendly to investors. Among its assets, the company owns and/or manages 800,000 hectares of farm and agricultural land in Argentina, Brazil, Paraguay and Bolivia; that's the equivalent of nearly 2 million acres, or an area twice the size of Rhode Island. In addition, it owns 62.4% of IRSA (IRS) , Argentina's leading real estate company. In turn, IRS owns, among other assets, 29.9% of Banco Hipotecario and 82% of IRSA Propiedades Comerciales S.A. (IRCP) . CRESY also owns a 43% stake in Brasil Agro (LND) .
All in all, it's a name that some deep value investors have flocked to over the years, but it has not been a name to buy and hold. It is not one for the faint of heart. Debt is an issue, especially because much of it is denominated in U.S. dollars, so the weakening Argentine peso does not help matters.
It's a "blood in the streets" situation that may get worse, but one where I became comfortable enough start adding to the small position I already held. Originally, I thought Macri would win, and thought I'd begin building a position once that became a real possibility. Now, with the election over and a lot of bad news is already priced into the stock, I've started to buy a name that no one else wants anyway.
The risks are huge, but it feels like I've been here before; I've owned the name under leftist governments in the past, when Kirchner was president.
