On June 14th, 2016, MSCI announced a reclassification of Pakistan from Frontier to Emerging Market status, and that Argentina would be reviewed for potential reclassification to Emerging Market status in 2017. On May 15th, 2017, MSCI is expected to formally introduce Pakistan into the MSCI Emerging Markets Index and to update the market regarding its decision on Argentina. The indexing firm's stringent criteria and vetting process has been a contributing factor for why the last upgrade to the Emerging Markets index occurred back in 2014, when Qatar and the UAE were added to the index.
In the relatively rare instances when a country is upgraded to emerging market status, many market participants expect to see rising trading volumes and flows into the country. These developments are often a result of a larger pool of investors looking to gain access to the market following its reclassification. In some instances, the introduction of additional investors into the market can also positively impact the performance of the country's stock market.
In light of the 2016 announcement from MSCI, we wanted to check in on the flows, volumes, and performance of these two countries since the announcement, based on data for the Global X MSCI Pakistan ETF (NYSEARCA:PAK) and the Global X MSCI Argentina ETF (NYSEARCA:ARGT).
Volume & Flows
Since the MSCI announcement, PAK and ARGT have both demonstrated meaningful upticks in investor interest with positive net inflows and rising volumes. Since June 14th last year, ARGT has seen net inflows of $31 million and PAK has added $24 million in inflows.1 As demonstrated in the table below, average daily volume for both funds has risen considerably. It is worth noting that the increases in volume and inflows are likely due to a confluence of factors including MSCI's announcement, as well as the natural maturation of these funds, and growing recent interest in emerging markets more broadly.
Since MSCI's announcement, PAK and ARGT both outperformed the MSCI Emerging Markets Index. Over this time frame, the MSCI Pakistan Index and MSCI Argentina Index were the third and seventh best performing indexes, respectively, compared to the 23 countries represented in the MSCI Emerging Markets Index.2 The performance of these two countries may be attributed to a combination of increasing foreign investment into these markets, as well as improving economic and political situations in both countries.
For investors looking to gain access to Pakistan and Argentina, the Global X MSCI Pakistan ETF and the Global X MSCI Argentina ETF are the first US-listed ETFs with dedicated exposure to Pakistani and Argentinian equities.3
The performance data quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when sold or redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance quoted. Returns for periods greater than one year are annualized. For performance data current to the most recent month- and quarter-end, please click here: PAK, ARGT
1. Source: Bloomberg. Data from 6/14/16 to 4/21/17.
2. Source: Bloomberg, MSCI. Data from 6/14/16 to 4/21/17.
3. Source: ETF.com. As of 4/27/17.
MSCI All Argentina 25/50 Index: The MSCI All Argentina 25/50 Index is designed to represent the performance of the broad Argentina equity universe, while including a minimum number of constituents. The Broad Argentina Equity Universe includes securities that are classified in Argentina according to the MSCI Global Investable Market Index Methodology, together with companies that are headquartered or listed in Argentina and carry out the majority of their operations in Argentina. The index targets a minimum of 25 securities and 20 issuers at construction. The index is designed to take into account the 25% and 50% concentration constraints required for a funds to qualify as a regulated investment company (NYSEMKT:RIC) in the United States.
MSCI All Pakistan Select 25/50 Index: The MSCI All Pakistan Select 25/50 Index is designed to represent the performance of the broad Pakistan equity universe, while including a minimum number of constituents. The broad Pakistan equity universe includes securities that are classified in Pakistan according to the MSCI Global Investable Market Index Methodology, together with companies that are headquartered or listed in Pakistan and carry out the majority of their operations in Pakistan.
There are risks involved with investing, including possible loss of principal. In addition to the normal risks associate with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted account principles or from social, economic or political instability. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Certain economies in the Middle East depend to a significant degree upon exports of primary commodities such as oil. A sustained decrease in commodity prices could have a significant negative impact on all aspects of the economy in the region. Middle Eastern governments have exercised and continue to exercise substantial influence over many aspects of the private sector. Pakistan is also subject to natural disaster risk. In addition, recent political instability and protests in the Middle East have caused significant disruptions to many industries. Continued political and social unrest in these areas may negatively affect the value of your investment in the Fund. Pakistan has recently seen elevated levels of ethnic and religious conflict, in some cases resulting in violence or acts of terrorism. Escalation of these conflicts would have an adverse effect on Pakistan's economy. The funds are non-diversified.
Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in the Funds' full or summary prospectus, which may be obtained by calling 1-888-GX-FUND-1 (1.888.493.8631), or by visiting globalxfunds.com. Read the prospectus carefully before investing.
Global X Management Company, LLC serves as an advisor to the Global X Funds. The Funds are distributed by SEI Investments Distribution Co., which is not affiliated with Global X Management Company or any of its affiliates.
Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Market price returns are based upon the midpoint of the bid/ask spread at the close of the exchange and does not represent the returns an investor would receive if shares were trade at other times. Brokerage commissions will reduce returns. Global X NAVs are calculated using prices as of 4:00 PM Eastern Time.
Indices are unmanaged and do not include the effect of fees, expenses or sales charges. One cannot invest directly in an index."
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.