Argentina: Not Quite Ready For Prime Time

The Global X MSCI Argentina ETF ARGT has spent significant time this year as one of the best-performing single-country exchange-traded funds, but the largest ETF dedicated to Argentine stocks slipped a bit in June amid disappointing news from index provider MSCI Inc. MSCI.

A key driver of ARGT's run through the first 5.5 months of 2017 was Argentina's place on MSCI's list for possible upgrade to emerging markets status. The operative word there is “possible” because being on that list is far from a guarantee of gaining the prestigious emerging markets promotion.

Traders bid ARGT and Argentina's equity market higher on the basis that MSCI would elevate the country from its frontier markets status, seemingly betting that this promotion would be easier because Argentina was once classified as an emerging market. However, that did not happen.

More Work To Do

While MSCI said Argentina is making progress toward regaining the emerging markets designation, South America's second-largest economy still has some work ahead of it.

“Although the Argentinian equity market meets most of the accessibility criteria for emerging markets, the irreversibility of the relatively recent changes still remains to be assessed, including the removal of capital controls and currency restrictions, needed to remain in place for a longer time period to be deemed irreversible,” said MSCI.

Politics could be at play regarding Argentina's frontier market status.

“Since President Mauricio Macri was elected in December 2015, Argentina has been one of the best performing equity market in Latin America, up by around 54% in US dollar terms since the end 2015, according to data from BlackRock,” said Morningstar. “However, the current Macri administration does not have a very strong political position or a majority in Parliament, resulting in a fragile coalition. While the result of the mid-term election in October could end up a better majority for Macri’s government, it could go another way.”

Some Good News

Argentina remains a key component of the MSCI Frontier Markets 100 Index, accounting for over 18 of hat index's weight. Only Kuwait has a larger allocation in that benchmark.

While ARGT slipped following the MSCI announcement, the ETF has reclaimed a good portion of those losses. Importantly, investors are not being scared away from the ETF. In fact, ARGT has added almost $6 million in new assets this quarter, bringing its assets under management tally to $177.2 million.

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