No Hand Of God Goal, But Argentina ETF Is For Real

After years of lost opportunity and mismanagement at the hands of two Kirchner administrations, the Argentine economy is getting back on track. That could be taken as a sign that this year's bullishness from the Global X MSCI Argentina ETF (Global X Funds ARGT) something to be taken seriously.

The Global X MSCI Argentina ETF, the lone exchange-traded fund dedicated to South America's third-largest economy behind Brazil and Colombia, is up 5.3 percent year to date. While that pales in comparison to the 13.3 percent surge by the iShares S&P Latin America 40 Index (ETF) ILF, it should be noted that almost ILF's pop has come in recent days and most of that move is attributable to Brazil. Argentina is not represented in ILF.

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In recent years, periods of bullishness for ARGT were usually marked by news that the country was either staving off a sovereign debt default, something it ultimately proved unsuccessful in doing, or was close to reaching some sort of settlement with U.S. hedge funds that became creditors during a sovereign default in the 1990s.

Changes On The Horizon?

Thanks to new President Mauricio Macri, things could be different for ARGT this time around.

“Argentina has not magically avoided the economic troubles that are plaguing most other emerging markets. It’s an economy that is highly dependent on commodity exports, suffering from slowing demand from key trade partners like China. So what’s the difference between Argentina and a similar country like Brazil, which has been flat this year?

“We believe, in a word, leadership. While Brazil’s president is currently fighting off impeachment charges for corruption, Argentina’s newly elected Mauricio Macri has swiftly begun addressing issues that have hampered growth in the past, such as removing currency controls and negotiating with the country’s creditors,” according to a recent Global X note.

While Macri was just elected in November, the ebullience surrounding his election and subsequent move is reminiscent of the Global X MSCI Colombia ETF GXG's halcyon days several years ago when investors embraced that fund on the basis of a political administration that was widely seen as the country's best in decades. In other words, politics really matter when investing in Latin America as ARGT's reaction to Macri's election confirms. Brazil, are you listening?

Remember that index provider MSCI classifies Argentina as a frontier market, so it is impressive that ARGT is up more than 5 percent, while the iShares MSCI Frontier 100 ETF FM is down 1.1 percent this year. At 16.5 percent, Argentina is FM's second-largest country weight behind Kuwait.

“Argentina’s performance this year should remind investors that effective leadership can be an important catalyst for returns. While the current status of emerging markets has failed to inspire many investors, one strategy to consider is betting on leaders that are enacting meaningful policies to open their economies and promote private business and foreign investment,” added Global X.