Last Updated on December 29, 2021 at 5:42 pm
The S&P MERVAL index has registered some astounding returns. Its 10-year SIP return is 36.68% (yes, that is annualized!) a 15-year SIP return of 30.25% and a 5-year SIP return of 30.06%. If you have wondered why the Indian and US stock markets have been moving up in spite of the pandemic, these returns from a country beset with economic and debt crises are bizarre, to say the least.
Merval stands for MERcado de VALores and is the primary stock index of Argentina. The returns mentioned above are in Argentine Pesos. Fifteen years ago, one such Peso was worth Rs. 15 but now both currencies are valued the same. Like we saw earlier in the case of Japan and India, these returns would mean little for the ordinary Argentinian. See: Nifty SIP provides 2% real return over 15 years but underperforms Japanese equity by 50%
Before we proceed, it must be kept in mind that this article is for informational purposes only and no part of it should be treated as investment advice. The Argentine stock market is perilous in more ways than one. The returns mentioned above were fraught with risk.
According to statistica, these are the annual inflation rates of Argentina: In 2004 it was a comfortable 4.42%. Over the next nine years, it doubled and hovered around 9.5%. It was 25% in 2017, 34% in 2018 and about 53% in 2019. This fifth highest rate in the world. Regardless of the stock market movement, most citizens would have had little money left to even save, let alone invest. The central bank rate in Feb 2020 was 44% rather low by 2019 standards of 80%! Those SIP returns may seem juicy but they are theoretical.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
In May 2020 the country defaulted for the ninth time on sovereign debt since it became independent in 1816. Its international bond rating is a “D”. The international monetary fund has repeatedly bailed out the nation. This report explains the key reasons for the economic crisis: reliance on external funding, the flight of US investors and the worst drought in 50 years has led to a plunge in currency value.
The Merval movement from Aug 2005 to Aug 26, 2020, in log10 scale. Each 0.2 division in the y-axis represents the same gain or loss.
Notice the index has suffered two falls in Sep 2019 and April 2020 about half the size of the 2008 crash. The extraordinary uptick in the index combined with incredible volatility is because of international investors toying with Argentine stocks.
In spite of sovereign default, major stocks are listed at the NYSE and see brisk trading. Every major up movement is followed by strong profit-booking and more money flowing in to profit again. This is a dramatic example of a countries stock index not following “fundamentals”
We often tend to criticise government policy and the way our economy is handled. While that may be justified on an absolute basis, I would rather be living in India than in many other countries.
Although a bit extreme, Argentina is an example of why “high returns” from any asset class is not necessarily a welcome event. We tend to look back at 12% PPF/EPPF returns in the 90s and want to go back in time without appreciating that we barely escaped sovereign default. Like with a healthy lifestyle, everything in finance should also be in moderation – interest rates, inflation, exchange rate, asset class returns.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1000 investors and advisors use this!
New Tool! => Track your mutual funds and stocks investments with this Google Sheet!
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter with the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
Explore the site! Search among our 2000+ articles for information and insight!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter or Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts you and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu gets a superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or you buy the new Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low volatility stock screeners.
About freefincal & it's content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)