Argentina on Review for Emerging-Market Status After Macri Moves

  • MSCI to include Argentina in 2017 annual market revision
  • It has been rated frontier by MSCI for the past seven years

Argentina is one step closer to regaining its status as an emerging market as MSCI Inc. considers the possibility of an upgrade that could lure new investors.

The market in South America’s second-largest economy will be included in MSCI’s 2017 annual market review to determine if the nation is ready to leave its frontier status after seven years, the New York-based firm said in a statement.

The review comes as President Mauricio Macri takes steps aimed at jump-starting growth and restoring investor confidence. Since taking office in December, he’s eliminated most capital controls, scrapped some export taxes and reached a deal with creditors from the nation’s historic default in 2001.

A reclassification by MSCI, whose indexes are the benchmark for more than $10 trillion in assets worldwide, could bring a surge of capital from investors who wouldn’t put their money in a frontier market, a grade shared by countries such as Kazakhstan and Morocco. Funds with about $1.7 trillion in assets track MSCI’s emerging-market index, compared with just $26 billion for the frontier gauge.

“We’re doing our best to give the right signals to be part of MSCI’s emerging-market index,” said Marcos Ayerra, the head of the Comision Nacional de Valores, the nation’s securities regulator. “There’s a fight in the region for investors, so you really need to be more attractive to stand out. Being part of the emerging-market index will add market liquidity and accelerate the market for initial public offerings.”

Equity trading in Argentina has shriveled since 2009, when the nation was downgraded to frontier, following a rule that required 30 percent of incoming funds to be put in an interest-free bank account for one year. The capital control was undone in January by Macri. Argentina’s total market capitalization of $57.3 billion is now one-ninth that of Brazil and below that of smaller economies in the region including Chile, Colombia and Peru, which are classified as emerging markets.

In addition to reducing capital controls, MSCI requires that emerging markets have at least three companies that meet certain liquidity requirements and have a market value of at least $1.26 billion. YPF SA, Banco Macro SA and Grupo Financiero Galicia SA already meet the minimum requirements, according to a study conducted by Itau BBA.

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