MSCI says Argentina market situation makes index decision more difficult
LONDON, May 15 (Reuters) - Argentina’s recent market turmoil will make it more difficult for index provider MSCI to decide on whether to give the country the emerging markets status it seeks in June, the U.S. firm said on Tuesday.
Faced with a recent rise in dollar and U.S. Treasury yields, Argentina has found itself at the centre of an emerging markets sell-off with its currency losing a quarter of its value since the start of the year despite heavy central bank intervention. That forced Buenos Aires to turn to the International Monetary Fund for help.
A consultation with investors on whether to elevate Argentina to “emerging” market status from its current “frontier” market status is due to end within weeks and ahead of MSCI’s annual classification review due in June, said Sebastien Lieblich, managing director at MSCI. “We received a lot of unprompted feedback, going both ways,” Lieblich told Reuters during a conference in London.
“Clearly the discussions will be and the decision will be more difficult to take, given the latest on Argentina. Now whether that will spur a structural change or structural issue, we don’t know,” he said, adding MSCI was monitoring the situation constantly. In 2009, MSCI relegated Argentine stocks to its “frontier” index which encompasses smaller and less developed stock markets, as a result of Buenos Aires’ restrictions on inflows and outflows of capital in its equity market.
On assuming office in December 2015, center-right President Mauricio Macri declared Argentina open for business after more than a decade of sweeping state intervention, including capital controls, had choked off much foreign investment.
MSCI surprised markets by not promoting Argentina at its index review last year, which investors had widely expected. It said at the time it needed more signs that Macri’s pro-market reforms were “irreversible” to re-incorporate the country’s shares into its emerging markets index.
MSCI indexes are used by investment funds worldwide, with some $1.7 trillion of active and passive money benchmarked against its emerging markets gauges.
MSCI has not yet set a date for its annual review, though it is normally scheduled for the third week of June, said Lieblich.