No Latin American market has been as affected by the surprising election of Donald Trump as the 45th president of the U.S. than Mexico. However, Argentina, South America’s third-largest economy, is being affected as well.
Home to one of the world’s best-performing equity markets through much of 2016, Argentina saw its financial markets tumble last week in the wake of Trump’s stunning victory. The Global X MSCI Argentina ETF (NYSEArca: ARGT), the lone exchange traded fund tracking stocks in Argentina, slid more than 5% last week.
This latest for Argentine equities and ARGT come after a period of ebullience on the back of what was seen as a favorable domestic political environment. Market observers seem inclined to wager that Argentina’s newly elected Mauricio Macri could mean big changes in the economy after years of tepid growth. The pro-market Macri has pledged to quickly reverse much of the previous heavy-handed economic policies and open up the economy that has been posting back-to-back years of near stagnate growth, Bloomberg reports.
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In the 14 years after Argentina carried out the world’s largest default, the Nestor Kirchner and Cristina Kirchner implemented a number of outdated policies, including a heavily regulated foreign-exchange system, seizure of privately-owned assets and under-reported inflation.
After years in capital markets purgatory, some market observers Trump’s victory here in the U.S. could pinch recovering Argentina.
“Yields on the nation’s dollar-denominated bonds due in 2046 have surged about a half-percentage point to 7.4 percent since the Nov. 8 vote, and may rise to 8 percent, according to Walter Stoeppelwerth, chief investment officer at Balanz Capital. That would be the highest since President Mauricio Macri settled a bitter feud with holdouts from Argentina’s 2001 default in April,” reports Charlie Devereux for Bloomberg.[related_stories]
Argentina’s foreign reserves are at nine-year lows. Prices on the country’s commodity exports are down. The budget deficit is at its widest in three decades. Inflation is running at an annual pace of over 20%. Still, this is South America’s third-largest economy and home to abundant natural resources, levering the country to the rebounding commodities trade.
“In his first year in office, Macri is seeking to revive the economy, slow inflation that’s skyrocketed to 47 percent and strengthen the nation’s finances. A cornerstone of his plan is $35 billion in infrastructure spending next year that he says will kickstart growth,” according to Bloomberg.
Even with last week’s slide, ARGT is still up 24% year-to-date.
Global X MSCI Argentina ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.