It remains to be seen whether Argentina’s nationalisation of YPF ends up in a military face-off with Spain (wouldn’t that be the black swan that nobody even thought of?!), but this coverage is courtesy of Zacks Research:
“…In order to play the Argentinean economy in basket form, investors have the FTSE Argentina 20 ETF ( ARGT ) from Global X. The fund hasn’t exactly caught on with investors, as the ETF has less than $5 million in assets and sees pretty wide bid ask spreads.
On the nationalization news, the Argentina ETF sank by 3.6%, pushing the ETF pretty close to its 52 week low. While many Argentinean stocks weren’t too heavily impacted by the news, it should be noted that YPF does make up the fourth biggest allocation in the South American ETF and this company plunged by 11% during market hours although it was up about 2.4% after hours.
Beyond this, it is also troubling that the two biggest sectors in ARGT are energy and basic materials. Given that Argentina has proven to be a proponent of nationalization in the energy space and that basic materials could suffer the same ‘national public interest’ fate, it doesn’t look good for the fund going forward.
In fact, these two sectors combine to make up nearly 45% of the total assets including four of the top ten holdings. Additionally, one has to wonder how much other energy companies will want to invest in Argentina after this debacle, possibly signaling a shift in policy by many oil firms that have operations in the nation.
“Going forward, you are going to see a severe retrenchment of external investors in looking at Argentina,” said Enrique Alvarez , head of Latin American research at IDEAglobal, in a Marketwatchinterview. When nationalism and expropriation “come back into the government lexicon, those are terms that have no fit whatsoever in the current, broader scheme of financial markets and of investments around the globe.”
Thanks to this report and the general uncertainty in this South American market, many investors may want to shy away from an Argentina stock purchase. If anything, ARGT could be an intriguing long term short candidate, or part of a pairs trade with other South America ETFs.