In its Market Classification Review for 2020, index compiler Morgan Stanley Capital International (MSCI) confirmed that Argentina will retain its Emerging Market status for at least another year.
MSCI stated that it will continue to consult with market participants on the treatment of Argentina’s status while capital controls, which were introduced last year, remain in place and continue to provide barriers to market access for investors. The South American nation was promoted from a Frontier Market to an Emerging Market last year, but has since seen its position threatened to be stripped after the imposition of various restrictions in the market.
Sebastien Lieblich, Global Head of Index Solutions and Chairman of the MSCI Equity Index Committee said the following:
“The MSCI Argentina Indexes remain replicable, as only foreign listings are currently eligible for index inclusion, but the imposition of the current capital controls is not in line with the market accessibility criteria of the MSCI Emerging Markets Indexes.
The Argentinian authorities must realize that the prolonged application of capital controls or the introduction of further capital controls may force the reclassification of the MSCI Argentina Indexes from Emerging Markets status to either Frontier Markets or Standalone Markets status.”
A Twitter poll by Frontier Market News (@frontiermktnews) found that 71.8% of respondents believed that Argentina would be downgraded from the Emerging Markets category, while 16.9% said “No” and 11.3% stated that it won’t be moved from its current position just yet.
MSCI will continue to monitor Argentina and will consult with market participants before announcing its decision on whether or not the country should keep its Emerging Market status in the MSCI 2021 Market Classification Review. However, any event that facilitates a further deterioration of market accessibility will prompt MSCI to remove Argentina of its Emerging Markets classification as soon as practicable.
Despite the ongoing COVID-19 pandemic, the vast majority of global equity markets remained accessible for domestic and international investors, allowing market participants to manage risk during the crisis. Argentina and Turkey are two major markets that have seen a fall in the levels of accessibility during this time period, with the latter now on MSCI’s radar for a potential downgrade to Frontier Market status.
The deadline for debt restructuring talks has been extended to July 24th as creditors and the government reached an impasse over the $65 billion deal.
Rival index compiler FTSE Russell did not promote Argentina to an Emerging Market last year. Instead, it removed it from its Watch List for the potential upgrade, before completely removing 29 Argentinian securities from its FTSE Frontier Markets series. If capital controls remain in place by September then FTSE will demote it from Frontier Market to Unclassified Market status.