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Banking

GDP warrants fly on Argentina’s recovery

The securities prove to be among the hottest assets of 2006 – some of the best trades across the globe.

When investors look back to consider the best trades of 2006, high on their list should be Argentina’s GDP warrants. The securities, which were created as part of the sovereign’s debt restructuring in June 2005, returned a startling 150% in the first 11 months of 2006, spurred by the Argentine economy’s boisterous performance.

The warrants are trading at just above 13 cents, having begun 2006 at below 5 cents. The last quarter of the year, in particular, saw a surge in the price, which increased by nearly 50% over that period in 2005.

The performance of the warrants is directly linked to that of the Argentine economy. Market consensus suggests that growth in Argentina exceeded 8% in 2006, with some investment banks, such as Deutsche Bank, raising their forecasts to 8.5% in 2006, 7% in 2007 and 4.5% in 2008.

“Most analysts dismissed the GDP warrants, questioning the long-term growth prospects of the Argentine economy – and failing to understand that the real value of the instruments was the gap that was initially established above the GDP baseline,” says Walter Molano, head of research at BCP Securities in Greenwich, Connecticut.

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“Today, the GDP warrants are one of the hottest assets in the marketplace.

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