Why The Argentine ETF Remains Steady, Despite The YPF Plunge

Includes: ARGT, TEO, YPF
by: Emerging Money

By Jonathan Yates

Just because Argentina may have fools for political leaders, doesn't necessarily mean it's foolish to invest in the economy. The announcement that President Cristina Fernandez de Kirchner of Argentina will nationalize YPF SA (NYSE:YPF) had the major oil company's shares down more than 30% on very heavy volume to a 52-week low in trading yesterday.

By contrast, Telecom Argentina (NYSE:TEO) was up in market action for the session. For investors who are understandably less inclined to buy shares of individual publicly traded companies based in Argentina, there is the Global X FTSE Argentina 20 (NYSEARCA:ARGT), an exchange traded fund.

ARGT is based on the FTSE Argentina 20 Index. As 80% of its holdings must be economically tied to Argentina, the Global X FTSE Argentina 20 has declined significantly due to the current rule from Buenos Aries.

Year to date, ARGT is down 8.18%. Over the last month of trading, it has fallen 12.03%. At around $9.50 a share, it is close to its 52-week low of $8.87.

There is much to attract investors to ARGT. It has a dividend yield of more than 3% that pays its shareholders to wait for the rebound. As it has fallen so much in recent trading, concerns with the political leadership have likely been priced in. The major event that investors were waiting for was the nationalization of YPF, and now that wait is over, the damage to ARGT should also be over.

While YPF was off by more than 30% when the nationalization legislation was announced, it is significant that ARGT is down by less than 1%. Gauging the technicals of recent trading shows that positive candlestick patterns are longer in the body than the negative ones - which is bullish.

In intraday trading on the day of the YPF nationalization announcement, the Global X FTSE Argentina 20 ETF opened at $9.42 after closing the previous trading session at around $9.70. That was the low mark for the day as it quickly rose to around $9.60, another bullish trading indicator.

Investors should look at the current travails in Argentina as buying opportunities for the long term; the economy of the country will outlast the current political leadership.