Due to the country’s continuing capital limitations, index provider MSCI Inc downgraded Argentine stocks to emerging market category.
On the back of the country’s continuing capital limitations, index provider MSCI Inc demoted rgentine stocks to emerging market category.
According to a statement released Thursday evening, Argentina’s persistent capital controls led the downgrade to “standalone” classification, which comes just three years after the index provider upgraded the country’s shares from frontier to emerging-market category. Argentina’s ranking could be jeopardized if limits are maintained or increased, according to the world’s top index provider.
In a statement, Craig Feldman, global head of index management research and member of the MSCI Index Policy Committee, said, “Since September 2019, international institutional investors have been subject to the installation of capital limits in the Argentina equities market.” “The continued harshness of capital controls with no resolution is inconsistent with the MSCI Emerging Markets Index’s Market Accessibility criteria.”
The MSCI Emerging Markets Index and MSCI Frontier Markets Index do not include the MSCI Standalone Market Indexes. Panama, Lebanon, Palestine, Ukraine, Botswana, and Zimbabwe are among the countries that now fall within this category.
According to the announcement, the modification will take effect in the November 2021 semi-annual index review.
‘It’s not a good sign.’
According to JPMorgan estimates, the decision will result in a loss of around US$610 million from the three remaining businesses in the MSCI Argentina index. Because the stocks were left as “standalone,” rather than frontier status, there won’t be any inflows to mitigate that exit, the analysts added.
According to Joaquin Bagues, head strategist at Portfolio Personal Inversiones in Buenos Aires, “the new buddies of the standalone neighborhood do not inspire confidence in the investment community.” “From many perspectives, it is not a great move for Argentina.”
Since President Alberto Fernández entered office at the end of 2019, Argentina has tightened capital and currency controls. The country, which restructured US$65 billion in foreign debt last year, is still unable to access international loan markets and has strengthened steps to keep precious money within the country. While a recent increase in agricultural commodity prices boosted the country’s foreign reserves, it still faces huge loans from international lenders such as the International Monetary Fund and the Paris Club.
The MSCI Argentina index has increased by 4.8 percent since the start of the year, but it has lagged behind the MSCI Latin America index, which has increased by 10%. The only firms that remain in the index are Globant SA, Adecoagro SA, and YPF SA, while MSCI excluded others following a stock rout that destroyed trading volumes.