Argentine equities could be set for another blow as recently enacted currency controls might jeopardize the country's emerging-market status with index provider MSCI.
When MSCI reclassified Argentina to emerging market status from frontier market in 2018, it said it "would review its reclassification decision were the Argentine authorities to introduce any sort of market accessibility restrictions, such as capital or foreign exchange controls."
Under strong pressure to stem the Argentine peso's fall after primary election results, President Mauricio Macri on Sept. 1 reintroduced capital controls by authorizing Banco Central de la República Argentina to restrict the purchase and transfer of dollars.
In a statement following the decision, MSCI said the restrictions could lead to "material deterioration of an equity market's accessibility" and could result in the "reclassification of the MSCI Argentina Index to standalone market status."
"For now, MSCI believes that the MSCI Argentina Indexes remain replicable, despite the introduction of capital controls, as only foreign listings and depositary receipts are eligible for the MSCI Argentina Indexes."
The index provider said it will continue to monitor the situation and noted that any decision to reclassify Argentina would be preceded by a public consultation.
Although Argentina is at risk of losing its emerging market status, but the loss would be "minor collateral damage," Diego Martinez Burzaco, director of MB Inversiones, told El Cronista. He said MSCI might decide to act soon and not wait for its scheduled review of the classification.
Argentine markets have reacted negatively to recent political and economic developments, including the primary election where Macri lost by a wider-than-expected margin and the government's move to redefine payment schedules on short-term debt. S&P Global Ratings briefly classified the latter as a default.
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