As of August 3, 2017, the Merval stock index finds itself a mere 2.3% below its May levels. However, given the recent weakening of the peso, the same index is down over 11% during the same period when measured in US dollars. Not even fixed income assets payable in US dollars have been able to escape selling pressure.
At first glance, the weekly chart for the Merval Stock index seems to show an indecisive market that has traded steadily inside the 20,600 to 22,600 points range.
However, if we represent the same index adjusted by the corresponding ARS/USD exchange rate, it becomes clear that the leading stock market indicator has receded significantly, falling to USD 1,200 points. After losing almost half of its 2017 gains, the Merval index remains near mid-January levels and around 2016 highs.
The following chart summarizes the performance of Merval index’s constituents both in peso and dollar terms. Only two stocks managed to outperform the US dollar, amongst which we can find ¬Petrobras Brasil, which has helped sustain the index given its large weight in it. On the other hand, 20 of the remaining 22 stocks have fallen more than 5% against the US dollar.
Total return indexes on domestic bonds developed by Instituto Argentino de Mercado de Capitales (Argentine Institute of Capital Markets) show a similar situation for fixed income. Naturally, peso-denominated bonds have suffered the most from the higher exchange rate, but even dollar-denominated debt has dropped off over the past two months.