Rebounding Argentina ETF Faces Hurdles

Country elects a pro-business president, but fiscal austerity ahead.

CinthyaMurphy_200x200.png
|
Reviewed by: Cinthia Murphy
,
Edited by: Cinthia Murphy

Argentina elected a new president this weekend, bringing to an end the latest round of Peronist rule that left the country faced with slow growth, high inflation, depleted foreign reserves and isolation from global capital markets after defaulting on debt obligations.

Under the leadership of outgoing President Cristina Fernandez de Kirchner, Argentina became known for its stringent capital controls imposed on international investors, and a perceived lack of an independent regulatory authority to protect the rights of shareholders.

From Emerging To Frontier

In fact, back in 2010, the country was demoted to frontier from emerging market status by FTSE. Since then, the only U.S.-listed Argentina equity ETF, the Global X FTSE Argentina 20 ETF (ARGT), has struggled to return to levels not seen in more than five years, as the chart below shows:

But the latest presidential election that brought conservative Mauricio Macri to power under the promise of liberalizing the economy seems to have offered support to the ETF. In the past month coming into this weekend’s vote, the fund rallied more than 11%, bringing year-to-date gains to 4%.

Charts courtesy of StockCharts.com

Among the challenges Macri will face are “reducing Argentina's subsidy burden, encouraging foreign direct investment and negotiating renewed access to foreign credit markets,” geopolitical think tank Stratfor said in a research note.

“He will also face a sharply divided lower house of Congress, where intense political battles will be commonplace as Argentine parties vie for the votes they need to pass or block legislation,” Stratfor said.

Business Insider today noted that the road ahead may prove difficult, and investors might need to brace for a bumpy ride.

Devaluation Ahead

“Removing capital controls that have curbed access to dollars and unifying a multi-tiered exchange rate may lead to a sharp devaluation that, while needed to restore trade competitiveness, will most likely feed into consumer prices,” it reported.

“[Macri] is expected to scale back energy and transport subsidies in his first year to narrow a yawning fiscal deficit,” Business Insider added. “Economists estimate about 20% of government spending is on subsidies, but weaning Argentines off cheap power and transport may prove unpopular.”

It remains to be seen whether investors will return to ARGT, which has bled assets this year. So far in 2015, the $17 million ETF has lost $2.5 million in net redemptions.

ARGT tracks a market-cap-weighted index of at least 25 companies headquartered or listed in Argentina and that carry out the majority of their operations in Argentina.


Contact Cinthia Murphy at [email protected].

Cinthia Murphy is head of digital experience, advocating for the user in all that etf.com does. She previously served as managing editor and writer for etf.com, specializing in ETF content and multimedia. Cinthia’s experience includes time at Dow Jones and former BridgeNews, covering commodity futures markets in Chicago and Brazil equities in Sao Paulo. She has a bachelor’s degree in journalism from the University of Missouri-Columbia.