EMs dragged down by Argentina
Political fears meant Argentina lost 48% during August, dragging down the wider emerging markets index.
According to Franklin Templeton, Argentina was the worst market globally during the month following President Mauricio Macri’s poor performance in primary elections and fears of a populist victory in October’s elections.
Argentina was recently upgraded by index provider MSCI from a frontier market to emerging market so this recent underperformance would be a difficult issue, there were already questions whether it would be able to maintain its equity market accessibility.
As well as the political problems, the firm said ‘debt re-profiling and imposition of capital controls added to market concerns’ in Argentina.
During August, the MSCI Emerging Markets Latin America index lost 4.9% while the wider MSCI Emerging Markets index lost 2%, according to FE Analytics. The MSCI AC World index, which includes developed markets, was flat with returns of 0.02%.
However, the problems seemed largely contained within Argentina with Mexico being an outperformer with returns of 3.7% over the same period. It was also likely to benefit from the US/China trade war as it was a cheap place for manufacturing if companies were seeking an alternative to China.
“While we expect the volatility in financial markets to continue in the interim amid uncertainty about policies the newly elected administration will pursue, we believe the financials and consumer discretionary sectors remain attractive. Valuations have fallen to attractive levels, while profitability remains high,” said Franklin Templeton.
“Separately, the country’s favourable demographics, which includes a young working population, also helps support consumerism. Moreover, Mexico has done quite well in positioning itself as a manufacturing hub for the United States.”
Latin America suffered during August, underperforming against its global and emerging market peers, with Argentina losing more than 48% during the month.
AUTHOR
Laura Dew
Recommended for you
The growth of active ETFs is placing strain on technology providers, according to Calastone, as vehicles become more complex.
There has been a “noticeable uptick” in the use of smart beta ETFs by advisers and sophisticated investors, according to Betashares, who are using the vehicles to take control of their portfolio construction.
The FSC has announced 15 proposals ahead of the federal election which it hopes will increase the competitiveness of Australia’s financial services sector, including six with a focus on fund managers.
Regal Funds Management saw total net inflows of $2.1 billion during 2024, with flows primarily going into long/short equities and multistrategy vehicles.
