Argentina ‘ripe’ to reclaim emerging market status
Argentina is optimistic of reclaiming emerging market status for global investment portfolios on Tuesday when MSCI the index provider announces its latest rankings for a number of countries.
Investors and Argentina’s treasury minister, Nicolás Dujovne, believe the time has come for upgrading the country from its current ranking as a frontier market for inclusion in the world’s dominant EM equity index.
A host of market-friendly policies have been implemented since the administration led by Mauricio Macri was elected 18 months ago, with a record breaking $16bn sovereign bond sale ending a decade of isolation from international credit.
“The conditions are ripe for an upgrade,” argues Mr Dujovne. “We should never have stopped being an emerging market,” he adds, criticising the previous government for its populist policies.
Argentina was downgraded to a frontier market in 2009 by MSCI after the previous government applied foreign exchange controls.
An upgrade by MSCI would prompt investment funds from all over the world to buy Argentine equities. So far this year the Merval index of 27 companies has gained about 25 per cent in both peso and US dollar terms.
Jay Jacobs, director of research at Global X who manages an MSCI exchange-traded fund dedicated to Argentine equities said the fund’s assets have grown from less than $10m before the election of Mr Macri to almost $180m now.
“That [growth] is a microcosm of what we could see,” said Mr Jacobs, pointing out that with as many as 100 times more wealth tracking emerging markets than frontier markets, an upgrade would immediately create a far bigger pool of funds that could potentially invest in Argentina.
The potential inflow of funds into Argentina could boost the foreign ownership of Argentine equities from 2 per cent of gross domestic product in 2016 towards the emerging markets average of around 10 per cent, according to analysts at Morgan Stanley.
However Fernando Sedano, an economist at the bank warns capital inflows will strengthen the exchange rate, which has already been under pressure from unprecedented inflows into local debt markets over the past year. The strength of the peso has triggered complaints from local businesses about losses in competitiveness.
Mr Dujovne argues the benefits for Argentine companies — and by extension the broader economy — would be significant, since the cost of raising capital would fall with the growth in liquidity.
An MSCI upgrade would follow another milestone for Argentine companies on Monday, when Mercado Libre, an ecommerce website often described as Latin America’s answer to eBay, will be included in the Nasdaq-100 index.
Mercado Libre, which is valued at around $12.4bn, will replace Yahoo, which is being removed from the index because of its conversion to a closed-end fund.