Industry Updates

Argentina ETFs slide on MSCI downgrade

Set to lose emerging market status with MSCI in November

Dan Mika

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ETFs following Argentine stocks fell last Friday after MSCI downgraded the country by two steps on its four-step rating scale for foreign investment environments. 

Last Thursday, the index provider announced plans to downgrade the MSCI Argentina index from the “emerging market” status to “standalone markets” due to ongoing restrictions of the flow of funds through the country.

The change takes effect in November when the country will be removed from the MSCI Emerging Markets index.

The most recent regime of currency controls began in September 2019 in a bid to stem the loss of foreign reserves in the country’s central bank.

Currency controls

Argentina has used currency controls multiple times since the start of the century to keep citizens from selling the peso for U.S. dollars, particularly as the country reels from a missed foreign debt payment last May due to pandemic-driven pressure.

MSCI’s designations are designed to give investors a sense of how difficult it would be to enter a capital market in a foreign country. It has four tiers, ranging from “developed markets” for countries with few barriers to foreign investment, down to the “emerging,” “frontier” and “standalone” designations.

Craig Feldman, global head of index management research at MSCI, said: “Despite the fact that the MSCI Argentina index remains replicable given that only foreign listings are eligible for inclusion to the index, the prolonged severity of capital controls with no resolution is not in line” with MSCI’s standards.

The downgrade puts Argentina in the same market-grade status as Panama, Lebanon, Palestine, Ukraine, Botswana and Zimbabwe.

On the news, the Global X MSCI Argentina ETF (ARGT) and the iShares MSCI Argentina and Global Exposure ETF (AGT) both slid approximately 3.2% last Friday. Both of those ETFs follow an MSCI index broadly tracking Argentine equities.

There are currently zero ETFs listed in Europe that offer direct exposure to Argentine equities, however, the Xtrackers S&P Select Frontier Swap UCITS ETF (XSFR) has a 13.1% weighting.

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