Argentina’s Rally May be Short-Lived

Quiet as it has been kept, the embattled Global X Funds (NYSEARCA:ARGT) jumped over 10 percent in the past month prior to the start of trading Tuesday.

The catalyst has been a strong rally in Argentine sovereign debt, which was under heavy pressure late last year as speculation swirled the South American country could be headed for its second defaullt this century.

Argentina's Rally May be Short-LivedThe catalyst for the rise in Argentine bonds is, as Barron’s notes, speculation that a recent decision by a U.S. judge that Argentina must pay bondholders $1.5 billion will be hard to enforce.

The Bank of America Merrill Lynch Emerging Markets Sovereigns Argentina USD Index has surged 29 percent since November 29, according to Barron’s. Said another way, since November 29, Argentine sovereign debt has been nearly three times the investment that Global X Funds (NYSEARCA:ARGT) has been.

Another reason ARGT may be getting a lift is valuation. As in Argentine equities as measured by the MSCI Argentina Index, not the index tracked by Global X Funds (NYSEARCA:ARGT), trade at just four times forward earnings. That means Argentina’s equity market is far less expensive than rivals in Brazil, Chile, Colombia and Peru.

However, value in Argentina could be more a case of value trap than anything else. Barron’s cites a Citigroup research note that says the chances of the U.S. ruling in favor of the bondholders is unlikely to be overturned and “the chances of a technical default still remain high.”

Argentina equity bulls, presumably a group small in population, could point to the fact that Global X Funds (NYSEARCA:ARGT) is in rally mode and that the ETF devotes 36.5 percent of its weight to consumer staples stocks. That would imply a certain degree of insulation from macro events. While there is no refuting ARGT’s recent bullishness and a presumably favor sector weight, there is also no refuting the fact that Argentina is nowhere close to out of the default woods.

As has been previously mentioned, another sovereign default could easily be the last straw that leads index providers to revoke Argentina’s frontier market status.

Msci Inc (NYSE:MSCI) has already cautioned that is a real possibility as has FTSE Group, the provider of ARGT’s underlying index. What type of purgatory awaits countries that are demoted from frontier market status remains to be seen, but it is also clear that those types of headlines have weighed on Global X Funds (NYSEARCA:ARGT) in the past. Translation: ARGT could be 100 percent allocated to consumer staples and still be vulnerable to downside caused by rising bond yields as well as the loss of the frontier market status.

With headline risk high and an anti-free market government still in place, Argentina’s economy and equity markets represent high-risk bets. Those looking to participate in potential upside without the commitment of an “all in” Argentina bet should consider the iShares MSCI Frontier 100 Index Fund (NYSEARCA:FM). FM features a modest allocation of about three percent to the South American nation.

This article was originally written by The ETF Professor, and posted on Benzinga.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!