In a single day earlier this month, stocks in Argentina, South America’s second-largest economy, lost nearly half their value after pro-markets President Mauricio Macri lost a primary to Alberto Fernandez, a member of the Peronist party.

With investors speculating about Macri’s political future and at least one ratings agency downgrading Argentina’s rating into highly speculative territory, the Global X MSCI Argentina ETF (NYSEArca: ARGT) is lower by about 26% this month, a tumble that has nearly wiped all of the previously high-flying ETF’s 2019 gains.

While Argentina’s economy, South America’s second-largest behind Brazil, has not been perfect under Macri, he has been embraced by market participants there and helped engineer a critical bailout from the International Monetary Fund in 2018. Now market participants there have to digest the specter of a new president with ties to the controversial Cristina Fernández.

“In the wake of an extreme market selloff following the primaries, it’s easy for investors to forget these constructive economic signals and to become singularly focused on the political situation in Argentina,” said Global X in a recent note. “Yet the continuation of positive economic momentum through and beyond the election, regardless of the winner, should remain the top priority of politicians and the focus of investors.”

Dealing With Controversy

The markets view Macri more favorably after he assumed the presidency in 2015, promising to revive a stagnate economy with free-market policies, greater transparency and an opening to international markets. He also said the government would improve relations with the United States, which had worsened under Fernández.

Making matters worse is the fact that Argentina is still dealing with the effects of a recession, which prior to the primary election, the country was showing signs of emerging from.

“Despite laudatory remarks from the IMF and Argentina’s strong market performance earlier in the year, Argentina’s economy was and still is in recession, but improving. Inflation is decelerating, but still up over 50% year-over-year (YoY),” according to Global X.

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ARGT holds 26 stocks and is a heavily cyclical ETF with a quarter of its weight to devoted consumer discretionary stocks.

“Consumers began spending on Communication Services, Health Care and home maintenance, while consumer confidence has increased 11% since January,” according to Global X.

For more information on the developing economies, visit our emerging markets category.

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