Markets

Argentina ETF to Watch Post Presidential Runoff Election

Investors eyeing Argentina's economy were encouraged by the market-friendly candidate Mauricio Macri winning the nation's presidential runoff elections. Macri has defeated Daniel Scioli with 51.4% of votes, ending the 12 years of rule by Cristina Fernandez de Kirchner and her husband, Nestor Kirchner, preceding her.

South America's second-largest economy has been plagued with weak growth, high inflation, declining currency and debt default issues. However, Macri promises sweeping economic reforms that could lift the perilous economy out of darkness (read: Is the Argentina ETF a Good Buy Ahead of Runoff Election? ).

The investment climate in Argentina has been clouded by excessive governmental control over the economy ranging from heavy taxes on agricultural exports to capital and currency controls.

High tariffs prevented Argentina's farmers from reaping huge profits. As a result, despite being the second-largest exporter of corn and the third largest exporter of soybeans in the world, the country's agriculture sector never really picked up. High capital and currency controls have also discouraged foreign companies from pouring money into the economy as it prevents them from bringing their profits out of the border.

Scioli's policies were more or less in line with existing policies, which originated under Kirchner's rule and came to be known as Kirchnerism. However, Macri stressed on scrapping capital and currency controls as well as restoring the Central Bank's independence in an effort to boost investors' confidence. Further, he raised hopes of resolving the disputes with U.S. hedge funds over Argentina's debt, which Scioli refuses to do.

Nevertheless, Macri is up against several challenges in his bid to turnaround the ill-fated economy. These include low currency reserves, weak commodity prices, China-led slowdown and recessionary pressure in its trading partner country, Brazil (read: S&P Downgrades Brazil to Junk: ETFs in Focus ).

The victory of Macri definitely turns our attention to the sole ETF, Global X MSCI Argentina ETF ( ARGT ), tracking the nation's equity market (see all Latin American Equity ETFs here).

The ETF tracks the FTSE Argentina 20 Index., which is designed to measure the performance of the top 20 companies that are listed in Argentina or perform most of their operations in Argentina. The fund is highly concentrated in the top three firms with nearly 42% of combined exposure while the other firms do not occupy more than a 5.76% share.

ARGT has amassed nearly $18 million in its asset base and trades in average daily trading volume of more than 13,000 shares. The product is expensive, charging 75 bps in fees and expenses annually. It added nearly 1% in the last one month (as of November 24, 2015) but has a Zacks ETF Rank #5 (Strong Sell) with a High risk outlook (read: 3 High-Risk Country ETFs to Avoid Heading into 2015 ).

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GLBL-X MS ARGEN (ARGT): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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