Argentina Wins Upgrade to Emerging Status After Nine Years
Argentina won promotion to emerging-market status for the first time in almost a decade, rewarding President Mauricio Macri for his efforts to scrap capital controls and normalize the economy after taking over in 2015 following years of mismanagement.
The decision by MSCI Inc., which
dropped Argentina to frontier status in 2009, may set the stage for a 20 percent
gain in the benchmark equity index, Morgan Stanley says, after a peso rout created one of the world’s worst-performing stock markets in dollar terms. MSCI delayed a decision last year, saying it needed more time to assess the "
irreversibility" of Macri’s changes.
An upgrade seemed all but assured after Argentina completed the last items on a list of MSCI’s emerging-market criteria, including the implementation of short-selling stocks. That was before months of market turmoil forced the government to obtain a record $50 billion credit line from the International Monetary Fund.
It’s a welcome outcome for investors who had been pinning
hopes on an upgrade as the nation’s stocks head for the worst year in almost 10 years. An upgrade will allow funds that track more than $1 trillion to invest in the nation’s stock market, leading to about $3.8 billion of inflows, according to an
estimate by JPMorgan Chase & Co.
"International institutional investors expressed their confidence in the country’s ability to maintain current equity market accessibility conditions, which is a key factor in MSCI’s classification framework," MSCI said in its announcement. "MSCI also clarifies that it would review its reclassification decision were the Argentinian authorities to introduce any sort of
market accessibility restrictions, such as capital or foreign exchange controls."
MSCI also announced it was also upgrading Saudi Arabia’s status to emerging market.
Hopes for Argentina’s upgrade faltered earlier this year as the peso tumbled, forcing the central bank to jack up interest rates to a world-beating 40 percent and leading the nation to turn to the IMF for
assistance. Four different Wall Street banks assigned the chance for an upgrade at between 60 percent and 70 percent, but hedged themselves, citing volatility. An investor survey by Bank of America found that while 56 percent of participants thought Argentina should get an upgrade, only 38 percent expected it would
Argentina Wins Upgrade to Emerging Status After Nine Years