Argentina’s new legislation will boost capital markets, says Moody’s

May 21, 2018
Asset managers will be able to create and oversee new funds

Argentina’s recently passed capital markets legislation will help boost the financial markets and economic growth as well as encourage investment, according to a new report from ratings agency Moody’s Investors Service.

Moody’s points out that the reforms will not change the economy overnight but, by increasing investment, will help fuel long-term growth. The law turns Argentina’s securities regulator into something more like the SEC in the US, and revokes its power to take over publicly traded firms, a ‘populist policy that spooked investors,’ notes the report.

Moody’s observes that reforms will increase investment in mutual funds and allow for the creation of exchange-traded funds and index funds, boosting the managed assets industry – the biggest development for asset managers since Argentina nationalized its $30 bn private pension fund industry in 2008.

Asset managers will gain broad leeway to create and oversee new funds while investors will no longer be double-taxed on income from the funds. The legislation also benefits hedge funds and asset managers by allowing them to create more sophisticated investment options for so-called qualified investors that meet certain income or asset-ownership criteria.

The new law further clarifies and simplifies the process for issuing new stock, which will help locally traded companies to more efficiently execute their financing plans. These and other reforms, including new tax breaks, will, states the report: ‘Drive investment and create a larger, more diversified pool of securities companies can use to optimize their capital structures.’

Over time, this will invigorate an industry that represents just 4.6 percent of GDP compared with 21 percent in Chile and 53 percent in Brazil.

The new rules will also help smaller companies with funding, supporting economic growth, because they require smaller companies to issue digital invoices that are akin to commercial paper and can be traded in capital markets. Firms that might not otherwise qualify for bank loans will be able swap their invoices for cash to pay bills, hire workers and invest.

‘Bolstering capital markets will give the federal government and provinces more financing options, allowing them to tap local investors for funding. This will eventually reduce the need to issue foreign debt,’ notes Moody’s report.

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