How emerging markets remain a risk after Turkey and Argentina
One of the world’s largest index providers has warned that Argentina and Turkey could soon be dropped from the MSCI Emerging Markets Index if it becomes even more difficult for foreign investors to access their stock markets..
«Despite the fact that volatility increased sharply due to the Covid-19 pandemic, global stock markets remained accessible and continued to function well, allowing issuers to attract capital and investors to manage risk during the crisis», – stated Dimitris Melas, Head of Equity Research and Chairman of the MSCI Index Policy Committee.
However, Melas pointed out that two important emerging markets, Argentina and Turkey, «suffered greatly» in terms of market access in the last 12 months. «This could lead to their exclusion from the MSCI Emerging Markets Index», – he said.
The MSCI Emerging Markets Index is a benchmark used by many global funds and exchange-traded funds. It covers more than two dozen countries and is often used as an indicator of stock performance in emerging world markets..
The warning sounded shortly after negotiations between the Argentine government and international creditors on a $ 65 billion debt restructuring stalled, leaving the deal in the balance..
Argentina defaulted on its ninth sovereign debt on May 22 after delaying interest payments.
Argentina also imposed strict capital controls last September following a historic stock market crash that boosted demand for foreign exchange.
MSCI stated in its Annual Market Classification Review that these capital controls «make it impossible» access of international investors to the domestic stock market.
«Argentine authorities should be aware that prolonged or additional capital controls could force the MSCI Argentina Indices to be reclassified from Emerging Markets to Frontier Markets or Standalone Markets», – stated Sebastian Liebich, Chairman of the MSCI Equity Index Committee.
MSCI said it will continue consultations with market participants on the classification of Argentine MSCI indices.
However, any event that further deteriorates market accessibility will prompt MSCI to remove the MSCI Argentina Indices from the Emerging Markets Index. «As soon as possible».
MSCI announced that it is considering whether to start consultations on the proposal to reclassify the MSCI Turkey Index to the level of border markets or the status of autonomous markets., «if the already deteriorating level of accessibility of the Turkish stock market gets worse».
The group said that the level of accessibility of the Turkish stock market "negatively affected" bans on short selling and stock lending in October 2019 and February 2020, respectively.
MSCI also said it will reclassify Iceland’s index as border markets from autonomous markets following the country’s decision to lift capital controls last year. This made it easier for investors to access the Icelandic stock market, the group said..