Investors cautious of Argentine currency

The year started off with a lucky streak that has reversed direction in the last five trading sessions as world stock markets went into the red for the year. A correction was expected once China's manufacturing index fell, but the real explanation for the stumble is the Argentine peso losing value. The Ibex broke a key resistance barrier at 10,000 points and the losses could continue for several more days.

Spanish companies are invested in Argentina, although our main strategic focuses are in Mexico, Brazil and Chile. Uncertainty colors Cristina Fernández Kirchner's term in office, which means that most of the Spanish companies operating in Argentina have built strong provisions to combat risk. Now, the scope of this "tango effect" is being judged. Will it spread to other emerging economies? Will Brazil be affected the most?

It is unlikely that we will see continent level crisis like we saw in the 1990s. This tango effect will probably not last long. The region's economic and financial status is more solid now than before, although emerging economies all over the world are concerned about the chance that the Fed will decide to stop pumping funds into the US economy. Another issue is that Argentina will eventually stop making payments. Kirchner's government has been heinously mismanaged, leaving Argentina with low levels of cash reserves (less than 30 billion dollars). The nation cannot afford to keep backing the peso artificially. Nor can it pay debts to foreign creditors at high interest rates. Even though the tango effect will likely not spread outside Argentina this time, its own citizens will still end up suffering.