Decision to Return Argentina to Emerging Market Status Delayed, MSCI Says
June 20, 2017

Move based on concerns that recent market accessibility improvements needed to stay in place for a longer time period to be deemed irreversible.

A decision about whether to return Argentina to emerging market status has been delayed until 2018, index provider MSCI said Tuesday.

The moved surprised investors who’d expected the country to return to the widely used benchmark 8 years after it was shunned to frontier status amid rampant currency controls.

The MSCI announcement comes one day after the country sold the first ever 100-year bond for a junk-rated sovereign in a deal that was three times oversubscribed.

The company said the decision was based on investor concerns that recently implemented market accessibility improvements, including the removal of capital controls and foreign exchange restrictions, needed to remain in place for a longer time period to be deemed irreversible.

In its review last year, MSCI had cited the government’s move to abolish foreign-exchange restrictions and relax capital controls as a significant improvement for investors.

The MSCI Emerging Markets Index is one of the most widely used indexes to gauge the performance of emerging market equities, with $1.6 trillion benchmarked to the index.

At its height, Argentina represented 5% of the MSCI EM index and 14% of the MSCI LatAm Index. In its return, investors had anticipated a slimmer version of Argentina, representing 0.5% of the MSCI Emerging Markets Index and 3.9% of its LatAm index.

“The official announcement of this would usher in an entirely new investor class into Argentina,” said David Tawil, president of Maglan Capital, which is invested in stocks in Argentina.

Argentina’s return to emerging market status seemed nearly impossible two years ago. At that time, the country remained in default status following a 2001 default on $80 billion that was the largest sovereign default in history at the time.

Yet after settling with creditors last year, the government was able to return to international debt markets in April 2016 with a $16.5 billion global bond. That was the largest-ever sovereign-bond issuance by a developing country before Saudi Arabia later topped it a few months later

 

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