Argentina failed to recover its status as an emerging market on Tuesday, as widely expected by investors, after MSCI maintained its ranking as a frontier market in its benchmark equity index.
Despite the host of market-friendly policies implemented since President Mauricio Macri took power 18 months ago, Argentina must now wait another year before it can be reviewed for a potential upgrade.
It was downgraded in 2009 because of foreign exchange controls applied by the previous government.
Although investors were wowed by the country’s latest move on the bond markets yesterday with the issuance of a $2.75bn 100-year bond, a sell-off may now ensue as the MSCI upgrade was largely priced in.
While Argentine companies would have benefited from a fall in the cost of raising capital, the inflow of funds from abroad would also have helped to maintain the strength of the peso, which has harmed the competitiveness of some businesses.
In delaying an upgrade for Argentina, MSCI wrote:
“Since December 2015, the Argentinian Central Bank has abolished foreign exchange restrictions and the capital controls that had been in place for a number of years. These changes have resulted in, among other things: (1) a floating currency, (2) the elimination of cash reserves and monthly repatriation limits affecting the equity market and (3) the abolishment of the capital lock-up period for investments.
Although the Argentinian equity market meets most of the accessibility criteria for Emerging Markets, the irreversibility of the relatively recent changes still remains to be assessed.”