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What Lies Ahead of Argentina ETF after a Painful Week

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Argentina has been on the road to revival since market-friendly President Mauricio Macri took the helm of the nation in December last year. During this period the country formed closer ties with the U.S with an aim of boosting trade and investment (read: 6 Leveraged ETFs Soaring on Trump Rally).

However, with Donald Trump getting elected to become the 45th President of the United States, the relationship between the two countries “could come to a standstill” as per Argentinian Foreign Affairs Minister Susana Malcorra. The Argentinian government had openly supported Hillary Clinton during the electoral race.

Trump’s win has sent shockwaves across the globe owing to his unpredictable nature coupled with his anti-trade policies and triggered a broad sell-off in several countries. Mexican peso and the stocks were the hardest hit after the election results were announced. Trump has accused Mexico of taking away jobs from Americans and made it a prime target. If he goes by the policies mentioned during his campaign, it could hamper employment, GDP and exports. The Mexican currency slumped to a record low against the dollar (read: Emerging Market ETFs Dip after Trump Win, Time to Buy?).

Although Mexico is one of the worst affected countries, Argentina has not remained unscathed. The sole ETF, Global X MSCI Argentina ETF (ARGT - Free Report) , tracking the nation’s equity market fell 5.1% over the last five days as on November 15, 2016.

South America's second-largest economy, which has been plagued by weak growth, high inflation, declining currency and debt default issues, is undergoing drastic overhaul measures proposed by the country’s government to advance its economy (read: Is Argentina on a Revival Path? ETFs in Focus).

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. 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).

As of now, Argentina is focused on forming closer ties with Trump. As per Macri on his conversation with Trump, the latter has stated “Argentina is a great country and we will have the closest relation between our countries in history”.

Although prima facie Argentina’s economy looks in a good place, 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.

ETF in Focus

Global X MSCI Argentina 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 more than 40% of combined exposure while the other firms do not occupy more than a 5.2% share.

ARGT has amassed nearly $88.6 million in its asset base and trades in average daily trading volume of more than 54,500 shares. The product is expensive with an expense ratio of 0.75%. It has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook (see all Latin American Equity ETFs here).

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