Liquidity Could Serve as a Roadblock in Argentina’s Path to Emerging Market Status 1

Two ways to invest in Argentina

We recently interviewed Asha Mehta, Senior Vice President and Portfolio Manager at Acadian Asset Management on various frontier markets and their prospects. Argentina was one of the markets discussed. The market is attracting much investor focus recently. Argentina is currently on the MSCI’s watch list for consideration for inclusion into its emerging market basket in May this year.

Argentina was previously an emerging market (EEM) (VWO). It was downgraded from the emerging market status by the MSCI in 2009. Since then, MSCI has been giving the market a sort of special attention. The important thing to note here is that back then, MSCI excluded the local lines from the classification and focused on the ADRs. The Global X MSCI Argentina ETF (ARGT) provides exposure to Argentinean equity. The iShares MSCI Frontier 100 ETF (FM), the Guggenheim Frontier Markets ETF (FRN), and the WCM/BNY Mellon Focused Growth ADR ETF (AADR) also have 17.9%, 15.9%, and 15% of their portfolios allocated to Argentina, respectively. There are also a number of Argentinean companies which trade on the US exchanges (table above).

Two ways to approach it

Argentina is a unique market. There are two ways to approach it:

  1. Through ADRs
  2. Through local listings

This time, when the MSCI makes its assessment about Argentina in May, it’s likely to assess the market more at the local level. “And, at the local level, Argentina does not offer much liquidity,” Asha told Frontera. Moreover, “international access to the local market is hard to come by,” she added.

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Not all are convinced about an Argentina upgrade

So, Asha Mehta from Acadian Asset Management isn’t as bullish about an MSCI upgrade to Argentina in May. As revealed by Asha, Acadian also does not see significant strength in the private sector in Argentina. From an economic perspective, Argentina has struggled under the previous regime. In 2015, Mauricio Macri, with his technocratic view, was voted in as President. However, the locals in Argentina seem quite dissatisfied with the pace of improvement in their economy. We often hear news about citizens taking to the streets in protest.

So, from an economic perspective, Acadian doesn’t see a turnaround in the Argentinean economy yet. Moreover, they do not see very high quality businesses with attractive valuations. So for now, Acadian is investing with a stock-specific, opportunistic lens in the Argentine market.

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