MSCI is moving Argentina out of the frontier market category and back into its emerging markets portfolio.
The index provider bases its decision on consultations with investors across the globe and cited that “international institutional investors expressed confidence in the country’s ability to maintain current equity market accessibility conditions, which is a key factor in MSCI’s classification framework.”
Argentina’s benchmark MSCI Index was downgraded to frontier market status in 2009 after the country instituted capital controls.
The move back to EM classification was expected to happen last year, but MSCI said at the time it needed more signs that reforms were “irreversible”.
The announcement comes at a time of high volatility in Argentina and changes in the economic policy leadership. The central bank just changed hands, with former Finance Minister Luis Caputo taking over last week. President Mauricio Macri’s also recently decided to combine the economy and finance minister positions into one ministry under Nicolás Dujovne, who helped negotiate the $50b package with the IMF – this following a hike in interest rates to 40% from 27.25% and a spike in volatility in the exchange rate.
The recent volatility has not passed unnoticed. The MSCI statement said that “it would review its reclassification decision if the Argentinian authorities were to introduce any sort of market accessibility restrictions, such as capital or foreign exchange controls.”
The changes are to take effect May 2019. Being back on the MSCI EM means that institutional investors that follow the benchmark and investment funds that mimic the portfolio will load back on Argentine securities.
According to a banker that spoke to LatinFinance on condition of anonymity, upgrading Argentina’s status is what was needed for the country’s pipeline to flow again, as the market awaits Telefonica Argentina’s IPO.
Another source on a debt capital markets desk said that getting the IMF agreement and the stamp of approval from MSCI will further strengthen Macri’s policies and help restore some investor faith in Argentina.
Only securities listed abroad will be included in the MSCI Argentina because of low liquidity level on the domestic market. But MSCI said its decision can be reevaluated “as liquidity conditions on the Buenos Aires Stock Exchange continue to improve”.
The market cap of the Argentine bourse is $98bn according to Bloomberg data.
The MSCI also announced the inclusion of Saudi Arabia on the EM index. Sebastien Lieblich, MSCI managing director and global head of equity solutions, says that “these inclusions will result in the expansion of the global investment opportunity set and allow for greater diversity in the MSCI Emerging Markets Index, which is important to investors.”