I thought I was seeing things on Monday when I noticed that sum-of-the parts story Cresud (CRESY) , a diversified Argentine company with vast farming and real estate that I've owned on and off for years, closed down 38%. However, it was not a mirage, nor was the price decrease caused by payment of a special dividend; it was an all-out bloodbath as Argentine markets crashed, a term I don't use lightly, as the S&P Merval Index fell 48%.
In addition, the Argentine peso fell 15% versus the dollar, putting the country on the precipice of a financial crisis and renewing fears that it will default on its debt yet again. The culprit here was the primary election results that saw President Macri defeated by Alberto Fernandez and his running mate, former president Cristina Kirschner. It was likely a vote against Macri's austerity measures, which are necessary to transform the country.
If the conservative Macri, who has made strides in reforming Argentina's economy and tax system and in bringing the nation out of isolation, is defeated in the October election, all bets are off. The prospect of his defeat and a return to the past, including government control, massive inflation, debt defaults, and corruption that took place under Krischner's administration, has investors heading for the hills.
For its part, Cresud, now trading at a 10-year low, remains a sum-of-the parts story, but certainly not in a safe market. The company manages agricultural land to the tune of 800,000 hectares, 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; that stake is valued at $385 million without applying a large-stake discount. IRS also suffered a significant takedown on Monday, with shares falling 38%. 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) valued at $97 million. CRESY's current market cap is $378 million; as of March 31, the company had net debt of $423 million.
The above discussion just scratches the surface of asset exposure in what is a fairly complicated web of ownership. In a perfect world, CRESY would be worth well in excess of the current price. However, this is not a perfect world, with Argentina on the brink of a crisis that may get worse depending on the election results.
I'd consider adding to my current small stake in CRESY if I believed there was decent possibility that Macri would win in October. That might put Argentina back in investors' good graces, making this a potentially huge buying opportunity based on an overreaction, the likes we have not seen since 2008-2009 in U.S. markets. However, the country's fate is in the hands of an electorate that may not be able to stomach the austerity measures necessary to move the country forward, but instead will favor going back to the womb of government control. Inflation has remained a huge issue as well, one that Macri is attempting to address, yet it currently sits at 55.8% (June).
This is one story that is worth following.
