Actions: what does it mean for Argentina to become a “frontier market” again, alongside countries like Morocco, Kenya or Bangladesh?

Everything indicates that the rise of the Argentine stock market in the universe of emerging markets would have lasted a sigh. In the coming hours, some point out that it could be today, the advisory committee for the conformation of the various MSCI indices will deliver its verdict. The most likely and what would already be ruled out is that he decides to descent Argentinian papers into the “border” category, where he fell in 2009 and remained until 2018.

It was one of the issues on which the Bourse had insisted the most, through its president, Adelmo Gabbi. The goal was for the Argentinian market to enter the upper leagues, where the cash flow of millionaires is managed. With a minimal portion of these resources, the Argentinian market could have taken a huge boost.

But nothing went as planned. The currency crisis that erupted in the second part of Mauricio Macri’s government prevented him from entering this virtuous circle.

The MSCI Emerging Markets Index is composed, according to a report published by Invertir On Line, of a total of 1,391 companies, among which stand out companies from China, India, Taiwan, Brazil and Africa from South. When the Argentinian market was reclassified to join this “elite”, 8 local companies were added to the index. Today, only three remain: YPF, Adecoagro (joined in May to replace Telecom) and Globant (although she was born in Argentina today most of her income comes from abroad).

The possible demotion to the “frontier” category is bad news as it shows the almost irrelevant place of the local stock market. However, also in the last few hours a slightly more favorable reading was gaining space.

It turns out that Argentine stocks would make up around 20% of the new panel, so many funds that invest in this category would have to include a few local newspapers. In this way, they would continue to follow the index as it will be published by MSCI.

In the event of a “crossing” from the emergent to the border, Argentine stocks would continue to coexist in the neighborhood with Vietnam, Morocco, Bangladesh, Kenya, Kazakhstan and other countries with little relevance among large investors. However, the country has a chance to become a “mouse head”, that is to say that it will have a relevant place but among countries not very attractive for big investors. As an emerging market, this was a sort of “lion’s tail”, as it was only present for 0.3% of the index.

The severe control of capital and the poor institutional quality would condemn Argentina to once again become a “frontier” country, a category that it had abandoned after nine years in 2018. If it is confirmed, it will have taken a fleeting step alongside the countries. emerging, where they are China, India, South Africa and Russia

Beyond a certain short-term benefit, a more comprehensive look does not allow too much optimism. Foreign exchange regulations and poor institutional quality have meant that Argentina is on the verge of ceasing to belong to emerging countries. This is how it consolidates the decline of recent years, given that it was one of the most important countries in the emerging world in the early 1990s, when, for example, China was barely emerging.

However, various financial market experts have not agreed in recent hours on the real impact that the classification of border markets would have. For some, this is the big trigger that generates the rise in the Merval index, which already exceeds 20% in just over a month. Others felt that this was irrelevant news and that the market is moving due to other factors: the proximity of legislative elections which could still be (less hegemony for the government), soybeans above 500 USD per tonne and a Central Bank which has again accumulated reserves.

In the longer term, the aim should be to become (or remain) an emerging market again and try to attract at least part of the annual flows that these countries receive. These are clearly significantly larger volumes than those received by the “border” countries.

The MSCI index is only linked to the stock market, leaving out everything debt related, which is rated by companies such as Moody’s or Standard and Poor’s. Argentina also does not do well in these rankings, as it is among the countries with the worst score, since the prices of its sovereign bonds remain at levels close to default.

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