In what represents a stunning reversal of fortune from how the
fund performed last year, the Global X FTSE Argentina 20 ETF
) has been a juggernaut to start 2013. The embattled ETF, the
only tracking South America's third-largest economy, was up 8.4
percent year-to-date heading into Monday's trading session.
Any ebullience surrounding ARGT was dealt a serious blow on
Monday when the fund sank 1.3 percent on volume that was more
than double the daily average. The catalyst was a familiar one:
Argentina is once again embroiled in a rift with a foreign
This time it is Brazil's Vale (NYSE:
), the world's largest iron ore maker, though the latest issue to
bring pressure upon ARGT has nothing to do with iron ore. Vale is
also a major potash producer and Argentina's Mendoza province has
said it will take away a $6 billion concession for Vale if the
company does not get back to work on the Rio Colorado mine.
Vale delayed the project in December as part of a company-wide
Dow Jones reported
. Vale also slashed its budget for Rio Colorado to $611 million
from $1.08 billion last year, according to Dow Jones.
The Brazilian commodities giant
issued this statement last week: "Vale clarifies
that it has not announced the suspension of the Rio Colorado
project, in Argentina. The company has extended the workers'
end-of-the year break while it evaluates changes in the economics
of the project." News of Argentina's intervention against Vale
comes less than a year
after ARGT plunged in the wake
of the government's nationalization of energy company YPF (NYSE:
). The two scenarios are not without similarities. Argentina grew
tired of YPF failing to increase output while the company kep
heaping dividends on shareholders. On Monday, Vale announced
a minimum $4 billion dividend for 2013
Argentina doing battle with Vale reminds financial markets of
one thing: Government policies there are viewed as unpredictable
and inhospitable to foreign investment. Gross domestic product
there grew at an average rate of 7.1 percent per year from 2003
to 2011, but now growth is faltering and Colombia has passed
Argentina to become South America's second-largest economy.
Still, ARGT has found a way to jump almost seven percent in
the past month even while it is widely known the country
is on the brink of its second sovereign debt
default this century
Credit default swaps used to ensure Argentine sovereign debt
against default blew out in the fourth quarter as market
participants started pricing in that default and it cannot be
Argentina is in real danger of losing frontier
Since 2011, President Cristina Kirchner has made it nearly
impossible for foreign mining firms operating in Argentina, of
which Vale is one, to repatriate profits or start new projects.
The flap with Vale only serves as a reminder to the dangers of
doing business in Argentina and that reminder could mean
near-term downside for ARGT.
For more on Argentina, click
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advice. All rights reserved.
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