The Global X MSCI Argentina ETF (NYSE: ARGT), the largest exchange traded fund dedicated to stocks in South America's second-largest economy, was one of the best-performing single-country ETFs last year.
ARGT surged almost 54 percent in 2017, outpacing the S&P Latin America 40 Index by a better than 2-to-1 margin. Part of the reason Argentine stocks soared last year was incremental progress on the part of President Mauricio Macri to open the country's markets and stem inflation. In 2018, investors may demand more.
“We believe a successful year for Argentina hinges on five key themes: generating strong economic growth, taming inflation, building political support for new policies, attracting foreign capital and achieving a market reclassification,” according to Global X research.
Eyeing Emerging Markets Status
Another significant catalyst for ARGT and Argentine equities last year was speculation that Argentina would be promoted to emerging markets status. The country is currently classified as a frontier market and is one of the largest geographic exposures in the MSCI Frontier 100 Index, one of the most widely followed gauges of frontier markets equities.
MSCI did not grant Argentina the coveted emerging markets tag. Still, Argentina remains on MSCI's list for a potential frontier-to-emerging reclassification and investors should expect an update on that move in June.
“Such a reclassification could potentially spur significant inflows into Argentina’s capital markets, given that over $1.6 trillion is benchmarked against the MSCI Emerging Market Index,” said Global X. “While Argentina’s government cannot control MSCI’s decision, continued pro-market reforms, political stability, and further opening of the economy to foreign investment could help their efforts to achieve Emerging Market status.”
ARGT holds just 26 stocks, with its top three holdings combining for almost half the ETF's weight. The technology, financial services and energy sectors combine for almost two-thirds of the fund's weight.
Unusually high inflation could scare away foreign capital, which hurts economic growth, and sows the seeds of discontent among the voting public,” according to Global X. “However, if the recovering economy can score well on each of these key themes, there could be a self-reinforcing effect that propels the economy to long term, sustainable growth. For these reasons, we believe 2018 will be a pivotal year for Argentina and its future trajectory.”
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