MSCI Inc is set to determine next week if Argentina will be reinstated in global stock indexes, a decision that may catalyse an influx of capital into the relatively illiquid domestic market. The index compiler is set to publish its Classification Review on June 23, which will determine whether Argentina remains on Standalone status, initiates discussions regarding its potential return to frontier status, or possibly ascends to emerging market classification. Morgan Stanley anticipates that MSCI will initiate formal consultations regarding Argentina’s status as an emerging market, a decision it estimates could draw approximately US$5 billion into domestic equities. Such an influx would represent a significant increase for a market characterised by a daily trading volume averaging below US$60 million this year. Balanz Capital forecasts that Argentina will maintain its Standalone status. “It seems very likely that Argentina could qualify for a double upgrade into emerging markets over the course of the next year or year and a half,” said Nikolaj Lippmann. The most probable outcome is that Argentina will be incorporated in the initial phases of 2028.
Investors are likely to receive initial insights later Thursday, as MSCI is set to release its annual Market Accessibility Review. While the report does not provide explicit classifications, any alterations to its evaluation of Argentina’s circumstances could suggest insights regarding the nation’s outlook in anticipation of next week’s report. An upgrade would represent the most recent endorsement of President Javier Milei’s strategy to transform the Argentine economy, which has already received multiple affirmations from credit evaluators. Country risk is currently at an eight-year low, with both S&P Global Ratings and Fitch Ratings having recently upgraded the nation’s sovereign rating. Argentina’s equity market has experienced a significant cycle since Milei assumed office in December 2023. Equities experienced a substantial increase in value during his inaugural year in office, as market participants responded positively to initiatives aimed at controlling inflation, reducing the fiscal deficit, and stabilising the economic landscape. The rally, which experienced a pause due to uncertainty surrounding the midterms, has since continued its upward trajectory.
The S&P Merval index approaches a 17-month peak in dollar terms, buoyed by high oil prices, robust earnings from energy firms, and increasing optimism regarding MSCI’s decision. Recent gains have been driven by a resurgence in foreign investment. Approximately $103 million has been invested in the Global X MSCI Argentina ETF this year, based on data. Morgan Stanley estimates that an upgrade to emerging markets could provide Argentina with a weighting of 0.28 percent in the EM index and 4.1 percent in the Latin America index, with the majority of demand concentrated on energy and financial stocks. MSCI last elevated Argentina to Emerging Market status in 2018 under the leadership of former president Mauricio Macri. In the past, the government removed capital controls and re-established financial markets for foreign investors, reintegrating Argentina into the global investment landscape after a prolonged period of market isolation. However, the return was ultimately ephemeral.
In the wake of a worsening crisis in 2019, Argentina reinstated controls and subsequently broadened their scope following the election of a left-leaning government. MSCI ultimately excluded the country from the index, assigning it to the Standalone category it has occupied since 2021. Since taking office, Milei’s administration has reversed several of those restrictions, facilitating access to foreign-exchange markets and relaxing dividend repatriation rules. It has persistently worked to dismantle certain barriers incrementally, including the recent relaxation of regulations governing local stockbroker operations. Nonetheless, significant constraints impacting foreign institutional investors persist, and officials from the Central Bank have suggested that there is no urgency to eliminate these restrictions entirely. Those lingering restrictions are one reason some investors remain sceptical about MSCI’s readiness to proceed. “The most likely outcome is that nothing happens and Argentina remains as Standalone,” stated Ezequiel Fernández,. “The initiation of a revision for EM inclusion remains feasible; however, capital controls concerning hot money continue to be the primary concern.”