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Troubled Argentina Tries to Turn a Corner

Troubled Argentina Tries to Turn a Corner

Big declines in Argentina’s currency and bond markets marked the beginning of a rout that spread across emerging markets in recent months.

Now, investors are bracing for a crucial week that will test whether the country’s markets can move beyond the recent pummeling.

Up first, the central bank will try on Tuesday to roll over $19 billion in short-term debt. If investors don’t flock to the country’s offering, it would mean that even with interest rates at 40%, there isn’t enough confidence in the peso to lure investors into the embattled currency.

The following day, index provider MSCI Inc. will decide whether to add Argentine stocks to its widely-followed emerging markets index.

As The Wall Street Journal’s Markets newsletter noted on Monday, the stakes are high. Inclusion in the index could draw billions of dollars in passive investment into Argentina’s stock market at a time of vulnerability. Morgan Stanley estimates the MSCI move could boost Argentine share prices by 20% over the next four months, based on $4 billion in fresh inflows. But if MSCI excludes the country from its emerging markets index, that could trigger another 6% decline in the market, the bank said.

“The world realizes this is an opportunity for Argentina to escape crisis,” said Oliver Bell, a portfolio manager at T. Rowe Price.

 

That comes as Argentina’s market crisis deepened last week, with the peso plunging 10% against the dollar despite a $50 billion bailout from the International Monetary Fund. Argentine stocks slid 13%.

Argentina’s central bank president Federico Sturzenegger resigned Thursday amid criticism that he failed to convey a coherent currency policy. While investors are cautiously optimistic about his replacement, Finance Minister Luis Caputo, the currency slipped another 1% on Friday.

But with a central-bank shakeup and IMF bailout unable to stem bleeding in financial markets, another blow to investor confidence is sure to intensify trouble for Argentine markets.

 

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