The Global X MSCI Argentina ETF (NYSE:ARGT) is the largest and most liquid Argentina country-specific exchange traded fund offering investors exposure to the most important stocks in the country. With that being said, we highlight a weakness in the fund's structure as it is highly concentrated among companies that are technically based in Argentina but make the majority of their revenues outside the country. Clearly, this dynamic has supported the fund's performance in what would have been an even deeper decline for the ETF amid the ongoing economic crisis and the over 50% depreciation of the peso currency this year. On the other hand, that same limitation on the direct exposure to the underlying economy would likely hold back the fund from fully benefiting to the upside from a sustained economic recovery. Overall, this is still a good vehicle to take a position on underlying macro trends. This article recaps the fund in the context of recent economic developments along with our view on where ARGT is headed next.
(Source: FinViz.com)
Background
It's been an extremely challenging period for Argentina amid a deep economic crisis including an inflation rate above 60% and GDP expected to contract by nearly 3% this year, with the recession expected to continue through 2020.
As a recap, going back to the presidential election of 2015, Mauricio Macri won on a pro-business and investor-friendly agenda quickly instituting a number of reforms, which despite the good intentions, failed to deliver on the promise of economic growth. The story was a case of wide imbalances among fiscal and external accounts coupled with weaker-than-expected growth leading to a speculative attack on the peso currency which has depreciated by over 75% against the U.S. dollar since 2017 and 50% this year.
The Central Bank battling accelerating inflation aggressively hiked interest
