In its September 2020 Country Classification Review, FTSE confirmed that Argentina will no longer be classified as a Frontier Market after failing to remove capital controls that have been in place for over a year.
Argentina was reinstated into the FTSE Frontier 50 Index in September 2017, but its position came under threat two years later after the Central Bank imposed capital control restrictions in a bid to prevent outflows of cash and in an attempt to stabilise the economy and the currency market. As a consequence, FTSE removed the country from the Watch List for a potential upgrade in status from Frontier Market to Secondary Emerging Market in September 2019, highlighting the fact that the “No objection to or significant restrictions or penalties applied to the investment of capital or the repatriation of capital and income” criteria was downgraded from “Pass” to “Not Met”.
In February 2020, FTSE listed the four scenarios that will lead to Argentina’s downgrade from a Frontier Market to an “Unclassified Market”:
- Subject to the capital controls not being removed by Friday 13th March 2020, locally listed Argentinian securities within the FTSE Frontier Index Series will be deleted at zero price and US-listed securities deleted at their last trade price. This will be effective from the open on Monday 23rd March.
- If capital controls are removed between Monday 16th March and Friday 20th March, then FTSE Russell will confirm whether or not locally listed lines will be deleted at zero price of their last trade price.
- If capital controls are not removed by market close on Friday 20th March 2020, Argentina will be placed on the Watch List for potential downgrade from Frontier to Unclassified Market status.
- Finally, if capital controls are still in place by Monday 28th September 2020, then Argentina will officially lose its place as a Frontier Market in FTSE Russell’s Country Classification and be moved to an Unclassified Market.
Because Argentina failed to satisfy any of the above criteria, all 29 of its securities were removed – including Banco Macro, Telecom Argentina and Grupo Financiero Galicia – from FTSE’s Frontier Series at the end of Q1 2020 and was finally stripped of its Frontier Market status as capital controls remained in place on Monday 28th September, effectively forcing the index compiler to class it as an “Unclassified Market”.
Rival index compiler Morgan Stanley Capital International (MSCI) promoted Argentina to Emerging Market status last year, but refused to downgrade it to Frontier or even Standalone Market status earlier this year. However, the country’s status will be under further scrutiny if capital controls remain it place and it may well see itself downgraded by MSCI before the end of the year as a result.
FTSE’s September 2020 Review also confirmed the following:
- Vietnam missing out on an upgrade from “Frontier Market” to “Secondary Emerging Market”.
- Romania officially upgraded from “Frontier Market” to “Secondary Emerging Market”.
- Peru officially downgraded from “Secondary Emerging Market” to “Frontier Market”.
- Tanzania officially upgraded from “Unclassified Market” to “Frontier Market”.
- Russia added to the Watch List for potential upgrade from ” Secondary Emerging Market” to “Advanced Emerging Market”.