Flows into Global X's Argentina ETF slow as EM volatility increases
The MSCI Argentina ETF was Global X’s best-performing country fund in 2017, surging 55 percent as investors poured in $69 million, seeking exposure to Argentine assets as President Mauricio Macri advanced his market-friendly reform agenda, Jay Jacobs said in a telephone interview.
Net flows have slowed to $8 million so far this year, from $29 million in the year-ago period and $32 million in the fourth quarter, when Macri’s coalition won a decisive victory in legislative elections that was seen as a crucial sign of public confidence in his agenda after years of populist policies.
“There’s some things within Argentina which you can point to, but the bigger picture is when the global capital markets have a tightening in risk appetite, anything that’s seen as risky gets sold off,” Jacobs said.
The $222 million fund is up 1 percent year-to-date, while Argentina’s Merval index, which rose 77 percent in 2017, is up 5 percent. That has come as volatility increased in emerging markets, with U.S. interest rate hikes and equity market sell-offs last month prompting a flight to safety.
Argentine companies have found it harder to list shares abroad, with power company Central Puerto SA and airport operator Corporacion America Airports raising less than hoped, and biotechnology firm Bioceres postponing its initial public offering.
Investors are also attentive to Macri’s struggles to lower inflation and boost growth, Jacobs said. In December, the government loosened its inflation targets, sending the peso currency tumbling. Twelve-month inflation rose to 25.4 percent in February from 25 percent the month before.
Central bank chief Federico Sturzenegger said it would decelerate when utility price hikes, key to cutting the fiscal deficit, end.
Macri has struggled to push his labor reform through congress, where his coalition is in the minority.
“Some of his political momentum might be slowing down,” Jacobs said. “I don’t think (there are) red flags going off, but there’s been such a wave of positive news ... that this might just be a little bit of cooling off in the sentiment.”
The ETF tracks overseas-listed shares of companies with Argentina exposure. Its largest holding is online retailer Mercadolibre Inc, followed by steelmaker Tenaris and financial services company Grupo Financiero Galicia.
Reporting by Luc Cohen; Editing by Christian Plumb and Richard Chang