1. CHINA GLOBAL ANALYSIS INC
ARGENTINA: A RISKY BUSINESS
We see Argentina as a risky country due to
inflationary pressure and currency controls.
This deeply influences industrial production,
causing a shortage of some consumption
goods and the consumer prices to increase.
Argentinian economy is mostly based on
Services (62.98% of 2011 GDP, Statista.com),
but also the Industry and Manufacturing
sectors and Agriculture play a significant role.
Due to lack of agreements with the “vulture
funds”, China and Argentina have signed pacts
to provide the latter with USD11bn from
China’s Central bank. Moreover in February
the two countries closed a key contract to
enhance partnerships for aerospace
technology, agriculture, infrastructure, and
telecom projects in the third largest economy
of South America (Euler Hermes).
Over the years, China has increased its
footprint in Argentina. In particular China has
major interests in the green gold (soybeans)
and in the black gold (crude oil) (Forbes).
-5
-4
-3
-2
-1
0
1
2
3
4
2013 2014 2015e 2016f 2017f 2018f
REAL GDP GROWTH (%)
Developing Latin America and the Caribbean Argentina Brazil Mexico
IN BRIEF
• Risk from shocks in international trade.
• Dependency on the prices of agricultural
commodities.
• China’s influence: 6% exports, 14.5%
imports (doubled over the years).
• Standard and Poor’s raising rating to B- due
to positive expectations on Macri’s reforms.
• No access to International financial markets
since 2001.
• The lack of majority in the Congress is a
significant obstacle for Macri’s reforms.
• Brazil, the leading export partner, has to deal
with a difficult economic situation causing a
slowdown in demand.
• Currency swap with China to stabilize Peso.
Source: Doing business 2016, World Bank

2. CHINA GLOBAL ANALYSIS INC
As reported by Washington Post after former President
Kirchner met with Xi Jinping, China and Argentina are
hardly working on the deepening of their strategic
relationship.
Chisa has heavily invested in the Latin American
country, building dams, railways and two nuclear plants
(up to $15bn according to Financial Times), which
could fill the void of governmental investments.
Agreements signed also include travel visas,
information technology, financing.
These big steps are part of Chinese strategy which aims
at investing in problem states, especially in Latin
America. This would secure allies, clients and resources
to Beijing, in a long-term view.
Argentina, with a GDP of more than 540B USD, is the
third largest economy in Latin America.
This significant role is the result of the growing
importance and international footprint of its two main
strengths: large-scale agricultural and livestock
industry.
To register a steady growth over the past decades,
Argentina has invested significantly in health and
education, areas accounting repectively for 8% and 6%
of GDP (World Bank).
In recent months, the worsening economic situation in
Brazil (the main trade partner) and the inflationary
pressure have deteriorated country’s fiscal situation. During the first half of 2015, the primary
deficit rose to 1% of GDP and the fiscal deficit increased to 2.3% of GDP, the double respect to one
year ago. To conclude, due to the risky scenario the government had to deal with, the growth for
2015 is expected at about 0.5%.
BANKING ENVIRONMENT
Present financial structure is in force since 1977 Financial Entities Law; its aim was to consolidate
the system (approx. 80 entities) and make it safer through a guarantee on deposits, even if country
default makes us doubtful. The system is regulated by the central bank, Banco Central de la
República Argentina.
We noted that ICBC, China’s biggest bank has an Argentinian branch, as HSBC does. Banking
environment is mainly free, as there are no restrictions for foreign institutions and investors (Doing
Business in Argentina, PwC). However, local financing is costly since interest rates are still high.
Law enforcement is efficient, but uncertainty and lack of confidence about governmental decisions
mine the system at its core pillar. However we believe foreign international banks like CITI, HSBC
and the aforementioned ICBC could fill the gap with their experience and international network.
• Population: 41,800,000
• GDP per capita 2014:
US $12,509.5.
• Exchange rate:
1 USD=14.85 ARS.
• Inflation, GDP deflator
(annual%): on average
29.3% during the
period 2011-2015.
• Current account
balance: -1.0% of GDP
in 2014.
• Trade balance
(monthly, million
USD): actual -160,
previous -1100
MACROECONOMIC
OVERVIEW

3. CHINA GLOBAL ANALYSIS INC
ARGENTINA COUNTRY & EQUITY RISK PREMIUM
Rating-based assessment
Argentina’s bad reputation among international investors keeps high its perceived country
risk. It shows among the highest ERP in the whole continent, even higher than Ecuador
(16.30%) but still lower than Venezuela (21.69%).
Moody’s rating Country Risk
Premium
Equity Risk
Premium
Argentina Caa1 11.55% 17.80%
Venezuela Caa3 15.44% 21.69%
Ecuador B3 10.05% 16.30%
Brazil Baa3 3.39% 9.64%
Chile Aa3 0.93% 8.02%
Source: Damodaran, Moody’s. USA assumed as default risk-free country.
Moody’s rating reflects Argentina’s lack of capital, since its disappearing from global
capital markets in 2001. Economy is weak, depending on agricultural commodities whose
prices dropped, reaching 2001 levels. Insufficient government investments add more risk. In
addition to that, country data are not reliable (famous manipulation of inflation data).
Relative Standard Deviation-based assessment
Argentina’s capital market is unstable and volatile. Unpredictable governmental decisions
made markets a risky place, where nothing is certain. High inflation like 30% avg 2015
corrodes savings and gains, requisition of capitals is still possible. This inflations is seen
among highest in the world (Don’t lie to me Argentina, Reuters 2015).
Annual Standard
Deviation (5 Years)
Relative Standard
Deviation
Equity Risk Premium
Argentina 43.63% 4.59 28.67%
Brazil 28.48% 2.99 18.72%
Chile 20.92% 2.20 13.75%
Mexico 18.25% 1.92 11.99%
Source: MSCI Investable Market Indexes (IMI), our analysis. RSD is relative to USA volatility.
The weakness of country’s balance, the uncertainty over the future and the unpredictable
business environment make internal markets highly volatile, more than 4x USA volatility.
Too high uncertainty makes difficult to price relative CDS, because of the excessive lack of
certainty surrounding this country’s future. Final Moody’s rating is a Caa1, “junk” rating.
Setting up a banking business requires some degrees of certainty about government policies
and trust in financial markets. Both of them are very unpredictable and unreliable in
Argentina. However things could change with new president, but will require a lot of effort.

4. China Global Analysis inc®, 2016. For professional and institutional investors only
CHINA GLOBAL ANALYSIS INC
RISK OVERVIEW
Argentina relies on agricultural commodities, therefore the drop in their prices occured in
2014-2015 was a huge shock. Commercial partnerships with Brazil and China (30% export,
38% import) expose Argentina to their recent economic slowdown.
Difficulty to trust governments. No serious reforms have been taken since 2001, budgetary
policy are not rigorous and public spending in energy and transport is really low. Risk of
expropriation is high and there is no transparency in data (inflation manipulation).
Since its default in 2001 Argentina is absent from global capital markets. This factor
increased the isolation and made even harder a possible recovery. However new president
Macri took agreements in order to reinsert Argentina into international capital markets
(Wells Fargo).
The result is a very uncertain business environment, in which establishing new banking
businessess could be very hard. Law enforcement is generally good, but more rigorous
actions have to be taken by the government. Overall outlook can change to positive if
president Macri really takes a path of rigorous and serious reforms, so difficult but so
needed, finally fading away every doubt about next government’s steps.
CHINA GLOBAL ANALYSIS INC.
THE COUNTRY RISK ASSESSMENT TEAM
Enrico Astegiano Filippo Cattabiani
Analyst Analyst
16 March 2016