Saying Latin American equities and the corresponding exchange traded funds are having a rough go of things to understate the situation.
Earlier this week, a glum technical situation was highlighted in the iShares Latin American 40 ETF (NYSEArca: ILF), that being ILF trading at its weakest levels relative to the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) since 2005. [LatAm ETFs Lag Emerging Markets Benchmarks]
ILF hit a new 52-week on Wednesday. So did the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) and the iShares MSCI Mexico Capped ETF (NYSEArca: EWW), two ETFs tracking countries that combine for over 80% of ILF’s geographic. Imagine if ILF featured Argentina exposure.
Mercifully, ILF does not hold Argentine equities. Mercifully because the Global X MSCI Argentina ETF (NYSEArca: ARGT) has plunged 5.6% over the past week and 14.6% over the past 90 days. ARGT’s three-month slide is 345 basis points worse than that of the iShares MSCI Frontier 100 ETF (NYSEArca: FM), an ETF that allocates 11.5% of its weight to Argentina, over the same period. [Oil Plagues Frontier ETFs]
ARGT’s 5.6% loss over the past five days is not even half as bad as the 13% drop for the benchmark Merval index over the same time frame.
“Investors are losing faith that the current administration will settle with holdout bondholders — “vultures” as President Fernandez calls them — in 2015. That’s when a clause in their bond contract that the Argentine government says prohibits them from negotiating with the holdouts, the RUFO (Rights Upon Future Offers) clause, expires,” reports Business Insider.
Dampening the mood further in Argentina is the country’s $12 billion in debt coming due next year. Argentina is attempting financial gimmickry to cool selling pressure in its financial markets. The country “is offering holders of its 7% Boden 2015 various options. They can either cash in at 97 cents on the dollar or swap into 8.75% Bonar 2024s at 99.70 for every 100 of the 2015s exchanged, plus accrued interest,” according to Reuters, a deal the country’s creditors are balking at.
Investors scoffing at that deal is not surprising because most debt swaps involve incentives for the creditor, but in this case, Argentina is demanding a premium.
Earlier this year, Argentina announced its third sovereign debt default in less than 30 years and its second this century. The impact on ARGT has been palpable. The ETF had about $36 million in assets under management in early August, a number that has since been reduced to $19.7 million. [Argentina ETF Sees Big Inflows]
Global X MSCI Argentina ETF
