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What Lies Ahead for Argentina ETFs?

Argentina's central bank raised its benchmark interest rate by 100 basis points to 28.75% as prices continued to rise and inflation expectations grew.


Economic Scenario


Argentina’s GDP grew 0.7% sequentially in the second quarter of 2017 and staged a recovery from the year-ago quarter when GDP had declined 1.7%. Moreover, the International Monetary Fund (IMF) expects Argentina to grow 2.5% in both 2017 and 2018 compared with its earlier estimate of 2.4% and 2.2%, respectively.


Consumer prices in the Latin American nation increased 1.9% in September on a monthly basis. Prices have increased 23.8% so far this year. Per a Reuters article, economists expect inflation to touch 23% in 2017 compared with expectations of 22% previous month and above the central bank’s target range of 12-17%.


What Lies Ahead?


Nicolas Dujovne, Argentina’s Treasury Minister, announced a tax reform plan last week which he expects the Congress to approve by the end of this year. The plan among other things aims to lower corporate income taxes to 25% from the current 35%. Dujovne expects the tax-reform plan to stimulate investment and add 0.5% to GDP growth in at least each of the next five years.


Expecting higher investments, Standard & Poor’s raised Argentina’s long-term credit rating to B+ from B. Despite still being in the junk category, the upgrade presents an optimistic outlook for investors. Moreover, Argentina is witnessing strong IPO demand.


Per a Barrons article, Loma Negra Compania Industrial Argentina raised $1 billion in an IPO, the largest offering since 1993. This is reflective of the investor belief in the markets (read: Here's Why International ETFs Continue to Outperform?).


In the current scenario, let us discuss a few ETFS focused on providing exposure to Argentine equities (see all Latin American Equity ETFs here).


Global X MSCI Argentina ETF ARGT


This fund focuses on providing exposure to Argentina equities.


It has AUM of $191.4 million and charges a fee of 59 basis points a year. From a sector look, Information Technology, Financials and Energy are the top three allocations of the fund, with 23.6%, 22.6% and 21.1% exposure, respectively (as of Sep 30, 2017). Mercadolibre Inc, Tenaris SA and Banco Macro SA-ADR are the top three holdings of the fund, with 20.7%, 13.2% and 10.3% exposure, respectively (as of Nov 6, 2017). The fund has returned 41.9% year to date and 40.9% in a year (as of Nov 7, 2017). ARGT has a Zacks ETF Rank #4 (Sell) with a Medium risk outlook.


iShares MSCI Argentina and Global Exposure ETF AGT


This fund focuses on providing exposure to Argentina equities. It tracks the MSCI All Argentina 25/50 Index.


It has AUM of $30.8 million and charges a fee of 59 basis points a year. From a sector look, Financials, Information Technology and Energy are the top three allocations of the fund, with 23.3%, 23.0% and 21.9% exposure, respectively (as of Nov 6, 2017). Mercadolibre Inc, Tenaris SA and Banco Macro ADR Representing Ten SA are the top three holdings of the fund, with 20.6%, 13.2% and 10.3% exposure, respectively (as of Nov 6, 2017). The fund has returned 12.7% year to date (as of Nov 7, 2017).


Below is a chart comparing the year to date performance of the two funds. AGT was launched in April 2017.


 
Source: Google Finance


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GLBL-X MS ARGEN (ARGT): ETF Research Reports
 
ISHRS-MSCI ARG (AGT): ETF Research Reports
 
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