Shares of the Global X FTSE Argentina 20 ETF (NYSE:
) are off 1.5 percent today and trading just 4.1 percent above
the fund's all-time low after Fitch Ratings slashed its its
long-term rating for Argentina to CC from B. That is a downgrade
of five notches. The ratings agency lowered its short-term rating
on Argentina to C from B. Fitch made the announcement after the
close of U.S. markets on Tuesday.
Noteworthy is the fact that a C rating is just one level above
default. Earlier this week, Benzinga reported that surging credit
default swaps used by traders to protect against an Argentine
indicated the country could be headed to its
second sovereign default
Over the past three years, credit default swaps used to
protect against default on Argentine debt traded between 500 and
1,500 basis points, implying a low probability of default.
However, those swaps traded as high as 4,000 basis points on
Monday before falling back to 3,000 basis points. No matter how
one views that, even at 3,000 basis points, the probability of
another Argentine default has risen noticeably in recent
Swaps on Argentine debt blew out earlier this year when
President Cristina Fernandez ordered the nationalization of
energy firm YPF S.A. (NYSE:
). The move was viewed by foreign investors as the latest in a
spate of anti-free market practices by the Fernandez
Administration. Despite abundant natural resources, foreign
companies and investors, generally speaking, are now apprehensive
about Argentina due to increased political risk.
The nation's politics have plagued the economy and ARGT.
Earlier this year, Colombia passed Argentina for the second spot
among South America's largest economies behind Brazil.
Year-to-date, ARGT is off nearly 25 percent, making it by far the
worst-performing country-specific ETF tracking a South American
nation. The next-worst performer among the marquee South America
funds is the iShares MSCI Brazil Index Fund (NYSE:
) with a loss 10.2 percent.
tracking Chile, Colombia and Peru are all positive on the
In its ratings assessment, Fitch cited the faltering Argentine
economy and rising political risk as other catalysts behind the
downgrade. Standard & Poor's rates Argentina B- while Moody's
Investors Services rates the country B3 negative. Both ratings
are five levels above default.
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