J.P. Morgan Recommends Buying Argentine Debt

Article

 
   By Prabha Natarajan

J.P. Morgan Chase & Co. (JPM) added Argentina's bonds to its model portfolio, used by funds with $229 billion under management to help decide what debt to buy.

The move drove Argentine debt prices higher, with the 2015 global bond quoted at 96.5 cents per dollar, up from 95.75 cents on Monday, according to Markit. Thebond yields 8.93%.

J.P. Morgan recommended increasing exposure to Argentina's dollar-denominated debt, predicting that default on these bonds remains a remote threat and advocating the country's higher yields as an attractive buy.

The expanded exposure by the closely followed model portfolio is expected to draw at least some investors to add Argentine debt to their portfolios. The primary attraction are the high yields the country's bonds offers investors, especially in a year when concerns about the Federal Reserve's policy has led to losses mounting to 10% or more on many emerging-market debt portfolios, as of August.

Many investors have been selling Argentine debt since early this year after a U.S. court heard a case against the sovereign by a group of holdout creditors.

In August, a U.S. appeals court ordered Argentina to pay its holdout bondholders as it pays its existing debtors. Argentina has sought an opinion in the Supreme Court, which is expected to be considered Sept. 30.

J.P. Morgan also expects Argentina to file a follow-up petition with the Supreme Court, postponing a final resolution to its legal case by up to a year.

In the meantime, Argentina's bonds could rise as investors seek higher-yielding assets, the bank said.

"The combination of a favorable global environment... high yields and prospects for litigation to linger for longer leads us to increase Argentine exposure," Vladimir Werning, analyst at J.P. Morgan, said.

But some analysts remain cautious on Argentina as other concerns come to the fore.

"As the legal risks shift to the background on procedural delays, the more threatening concern is the decline on [dollar] reserves," said Siobhan Morden, head of Latin America strategy at Jefferies LLC. The country uses these reserves to pay its bondholders.

Write to Prabha Natarajan at prabha.natarajan@dowjones.com

http://online.wsj.com/article/BT-CO-20130924-710434.html