Argentina under key MSCI review: potential upgrade in classification and attraction of investments

Financial operators and local analysts are closely watching the decision that MSCI will make today regarding the accessibility conditions of the Argentine market. This global portfolio review represents a key moment that could trigger the process of improvement in the country's classification.

Currently, Argentina is in the lowest category, known as “standalone,” sharing this position with nations such as Jamaica, Panama, Trinidad and Tobago, Bulgaria, Palestine, and Ukraine. This situation severely limits the possibility for many international funds to invest in local stocks.

A potential upgrade, whether to the frontier market level or directly to emerging market status, would radically change the landscape. Funds that replicate MSCI indices could then channel capital towards Argentine assets, generating a significant flow of investments.

It is estimated that a successful reclassification would attract around 4.5 billion dollars, according to recent calculations by Morgan Stanley, with a special impact on the energy sector.

What the current classification implies and possible changes

The “standalone” category prevents most large global funds from operating in the Argentine market due to restrictions in their own regulations, which only authorize investments in frontier or emerging markets. Moving to “frontier market” would place the country alongside economies like Pakistan, Vietnam, Serbia, and Slovenia.

The greater goal is to regain the status of “emerging market,” which Argentina lost in 2021 after the reimposition of currency controls and the debt default in 2019. Countries like Brazil, Chile, Colombia, Mexico, and Peru currently belong to that category.

The reclassification would not be immediate. Even if Argentina is included in the consultation process, effective changes would only materialize in 2027. Still, the announcement expected for Wednesday the 24th could mark the formal start of that path.

Last February, MSCI detailed the points that the country needs to improve to advance. Among them, the easing of restrictions on capital movements and the currency market stands out.

Advancements in market infrastructure are also required, such as enabling short selling and securities lending, improving settlement and clearing systems, and expanding the availability of investment instruments. Another key aspect is to equalize the rights between local and foreign investors regarding account registration and transfers.

The firm acknowledged that Argentina already meets adequate standards in requirements for international investors, limits on foreign investment, and in areas such as custodianship and custody.