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Is Argentina on a Revival Path? ETFs in Focus

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Argentina has been making it to the headlines recently for the measures proposed by the country’s government to advance its economy. South America's second-largest economy, which has been plagued with weak growth, high inflation, declining currency and debt default issues, has been undergoing drastic overhaul since market-friendly President Mauricio Macri took over the helm of the nation in December last year (read: Argentina ETF to Watch Post Presidential Runoff Election).

In an interview, Horacio Reyser, Macri’s top adviser for foreign investment, stated that the President plans to send a public private partnership bill to Congress, which has the potential to increase the country’s financing capacity by $90 billion. The move would enable the government to accelerate its investment in infrastructure and facilitate corporate access to multilateral lenders and capital markets.

The government is also working to make the country lucrative for foreign investors and targeting to achieve foreign direct investment of approximately $25 billion annually. According to the United Nations’ Economic Commission for Latin America and the Caribbean (CEPAL), foreign direct investment in Argentina fell 42% year over year to $6.6 billion in 2014. Foreign direct investment in Argentina is comparatively weaker than other Latin American countries like Brazil and Chile, which attracted direct overseas investments of $62.5 billion and $22 billion, respectively last year.

Macri has eased currency control, reduced subsidies and paved the way to access international capital markets through deals between the country and holdout creditors after a 15-year battle. In the past few years, the investment climate in Argentina has been clouded by excessive governmental control over the economy ranging from heavy taxes on agricultural exports to capital and currency controls (read: Argentina ETF to Watch on Debt Deal).

Meanwhile, the country’s central bank is working on curbing inflation to boost lending and provide the much needed impetus to the country’s dwindling economy. As per a Wall Street Journal report, the bank aims to reduce inflation to 25%, 17% and 12% by the end of 2016, 2017 and 2018, respectively. As a part of its measure to lower inflation, the central bank has issued short- and medium-term bonds worth $3.54 billion, earlier this week.

Although prima facie Argentina’s revival plans look encouraging, concerns about future defaults remain. Several analysts are of the view that the fiscal program comprises more of goals than clear-cut policies.

However, many investors are already betting on Argentina in the belief that the country’s macroeconomic situation will improve by the end of the year.

This debate has turned our attention to the sole ETF, Global X MSCI Argentina ETF (ARGT - Free Report) , tracking the nation’s equity market (see all Latin American Equity ETFs here).

The ETF tracks the MSCI All Argentina 25/50 Index, which provides exposure to the largest and most liquid securities with exposure to Argentina. The fund is highly concentrated in the top three firms with nearly 39% of combined exposure while the other firms do not occupy more than a 5.2% share.

ARGT has amassed nearly $86.1 million in its asset base and trades in average daily trading volume of more than 58,500 shares. The product is expensive with an expense ratio of 0.75%. It added nearly 8.6% in the last 30 days (as of June9, 2016), but has a Zacks ETF Rank #4 (Sell) with a High risk outlook (read: Argentina ETF Hits New 52-Week High).

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