Argentina Struggling to Keep Frontier Status
On light volume, shares of the Global X FTSE Argentina 20 ETF (NYSE: ARGT) are trading slightly lower. The small loss for the lone ETF exclusively devoted to South America's third-largest economy behind Brazil and Colombia is almost impressive when considering another index provider said Argentina could lose its frontier market status.
In its annual country classification, FTSE Group lists Argentina as a possible candidate for removal from the frontier classification while Mongolia is under consideration to gain frontier status.
Typically, a country sheds the frontier markets designation to gain emerging markets status. It is a promotion of sorts from index providers such as FTSE and MSCI (NYSE: MSCI) because frontier markets such as Argentina, Egypt and Vietnam are viewed as even more risky and less developed than nations with the emerging markets label.
"Argentina is listed for possible demotion from Frontier due to continuing stringent capital controls imposed on international investors and the perceived lack of an independent regulatory authority to protect the rights of shareholders," FTSE said in a statement. "Argentina was demoted from Secondary Emerging to Frontier in 2010."
FTSE becomes the second index provider to warn of a potential downgrade for Argentina. Earlier this year, MSCI said Argentina could be removed from the MSCI Frontier Markets Index if the government there continues to be hostile to free market principles.
"MSCI continues to monitor closely the situation in Argentina following the nationalization of YPF through the “expropriation” of a 51% stake from the Spanish company Repsol by the Argentinean government. Any further such government intervention in the “free‐market” economic system may force MSCI to launch a public consultation with the investment community on a potential exclusion of the MSCI Argentina Index from the MSCI Frontier Markets Index," MSCI said in June.
Argentina accounts for almost 3.4 percent of the MSCI Frontier Markets 100 Index, the index tracked by the new MSCI Frontier Markets 100 Index Fund (NYSE: FM). A demotion to whatever classification is below frontier could be a blow to Argentina and ARGT. The ETF has rebounded in the past month, gaining almost six percent, but the fund is still down almost 14 percent year-to-date as investors have grown wary of the government's anti-free market policies.
FTSE, which provides the index tracked by the largest China ETF, the iShares FTSE China 25 Index Fund (NYSE: FXI), also said Greece could be demoted to emerging market from developed. MSCI made a similar announcement in June.
In terms of other countries with specific ETFs that FTSE could promote, Poland and Taiwan are both under review for a promotion to developed market from advanced emerging market. The iShares MSCI Taiwan ETF (NYSE: EWT) is trading lower today, but the Market Vectors Poland ETF (NYSE: PLND) and the iShares MSCI Poland Investable Market Index Fund (NYSE: EPOL) are both higher.
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