An exchange-traded fund tracking Argentine stocks saw record inflows as Wall Street embraces President Javier Milei’s efforts to quell inflation and reverse years of endemic budget deficits.
The Global X MSCI Argentina ETF, known by its ticker ARGT, absorbed US$144 million of inflows for the week that ended on November 22, with US$88 million coming in on Friday alone, according to data compiled by Bloomberg. The fund, which is a vehicle for traders to pile into equity bets on a country where access to local markets is complicated by capital controls, saw assets jump roughly seven-fold from US$104 million when Milei took office to some US$750 million on Monday.
“Milei hasn’t just talked the talk, but is actually walking the walk,” Malcolm Dorson, senior portfolio manager at Global X Management, the firm that manages ARGT. “He has trade balances, he has built a fiscal surplus, inflation is ticking down, and economic activity is picking up.”
The inflows come against encouraging signs for South America’s second-largest economy, with month-over-month inflation shrinking to 2.7 percent in October, gains in real wages and some US$20 billion rushing into the country thanks to a tax amnesty programme. For the rally to continue, investors argue, the libertarian needs to deliver on nixing a spate of capital controls without stoking jumps in consumer prices and a peso sell-off.
“The news from Argentina continues to impress with inflation down sharply. The next big hurdle will be removing capital controls,” said Greg Lesko, managing director at Deltec Asset Management LLC in New York. “If they are able to remove capital control and you don’t see big outflows, that would be a sign of confidence in the programme.”
On Friday, Economy Minister Luis Caputo said the government will eliminate currency and capital controls, known locally as the “cepo,” in 2025. While Caputo didn’t offer more details on the timeline for the plans, he said that the country will slow the monthly pace at which officials let the peso slide should inflation stay at current levels or show signs of further cooling.
Keeping the currency rules as-is, the argument goes, may prolong the country’s economic slump, stall talks for an IMF programme with fresh cash, hamper efforts to lure more dollars into the country and thwart the government’s plans to re-enter capital markets by 2025.
False dawn
It also remains to be seen whether Milei’s incipient recovery isn’t another one of Argentina’s many false dawns. Money rushed to the country during an earlier turn to market-friendly policies, only to leave when pro-business president Mauricio Macri lost to the statist Peronist party in a 2019 vote.
To be sure, the fund’s inflows are not wholly explained by country-specific bullishness. Argentina-founded MercadoLibre Inc., which makes up 17 percent of the ARGT’s holdings, makes a majority of its revenue outside the country today while Milei’s peso devaluation in December hit sales in Argentina for the first half of the year.
In terms of a broader equity market outlook, Morgan Stanley recently reinforced its overweight rating for Argentina’s stock market, noting that policymakers have made delivered on a fiscal adjustment and deregulation campaign that’s beat expectations.
“Argentina could potentially represent the canary in the coal mine, and will be watched closely across the Andean region,” Morgan Stanley strategists including Nikolaj Lippmann wrote in a November 17 note. “Argentina policymakers have made extraordinary progress in 2024, with a fiscal adjustment and de-regulation efforts that have surpassed expectations.”
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by Kevin Simauchi & Leda Alvim, Bloomberg
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