The Argentine peso currency has rapidly depreciated over the past few days and is expected to weaken even further, sustaining a precipitous drop in the Argentina country-specific exchange traded fund.
The Global X FTSE Argentina 20 ETF (NYSEArca: ARGT) is off almost 4% on volume that is more than triple its daily averaged Friday. ARGT has quickly dipped below its 50-day and 200-day moving averages over the past three days, falling 9.0% since the Tuesday, Jan 21 high.
The Argentine peso fell 12% Thursday after President Cristina Fernandez de Kirchner’s cabinet signaled it would keeps its hands off the market, and was down as much as 16.5% over the past two days against the U.S. dollar, Bloomberg reports. [Tapering Bets Send EM Currencies Reeling]
The government is allowing the market to adjust prices after spending billions of U.S. dollars to buffer the economy. The country’s foreign reserves have declined at a $1.1 billion per month rate over the past year and now sits at a seven-year low of $29.3 billion.
“It wasn’t a devaluation caused by the state,” cabinet chief, Jorge Capitanich, said in a Wall Street Journal article. “For free-market lovers, the supply and demand of foreign currency expressed itself yesterday.”
Eurasia Group Ltd and JPMorgan Chase & Co.warned that the peso is likely to depreciate further without a definitive policy plan to cut spending or raise interest rates.
The Argentina ETF’s decline over the past few days in conjunction with the quickly depreciating Argentine peso highlights currency risks when investing in overseas markets. Since ARGT holds Argentine stocks, it is exposed to fluctuations in the currency. Investors may see lower performance once peso-denominated returns are converted back to U.S. dollars.
ARGT was the only single-country ETF tracking a Latin American nation to post a gain in 2013. [Bad Things Happening in Emerging Markets]
Global X FTSE Argentina 20 ETF
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