JPMorgan estimates that $1 billion could come in if Argentina returns to emerging market status.

JPMorgan Argentina is expected to eventually be reclassified as a Emerging market by MSCI It could attract nearly $1 billion in investment inflows into the country’s stocks. The move would mean a major change for the Argentine market, which is currently considered an “independent market” by the index provider due to capital controls that limit access for international investors. MSCI made its last annual reclassification in June and will not be able to revisit the market’s status until next year.

The US bank expects that if Argentina manages to rejoin the MSCI emerging markets indices, local companies could see a massive inflow of capital. According to JPMorgan, four companies will be included in MSCI’s Argentina benchmark index: YPF, Grupo Financiero Galicia, Banco Macro and Pampa Energía, while the small-cap index will include 11 other Argentine companies.

The analysis has reached the eyes Javier MileyWho celebrated the investment bank’s analysis on social media. The head of the nation wrote on his X account (former Twitter): “Normalization of the country.”

Diego CeledonArgentina’s weighting in the MSCI Emerging Markets (EM) index will be 0.2%, putting it between Colombia and Peru, the JPMorgan analyst noted in a quote recorded by Reuters. That small percentage could have a big impact on the local market.

“With a weight of around 0.2% in the emerging markets index, Argentina would be somewhere between Colombia and Peru,” Celedón said. If realized, the estimate could lead to total investment inflows of $1 billion, of which $786 million would come from the MSCI benchmark and $176 million from the small-cap index. That would be a huge injection into Argentina’s small-cap stock market.

The final reclassification will come in a context where the government the following It launched a series of structural reforms aimed at stabilizing an economy currently suffering from triple-digit inflation, recession and strict capital controls.Exchange rate) that has affected trade and investment. According to analysts, easing restrictions on stocks will be necessary for Argentina to regain the confidence of foreign investors.

JPMorgan stresses that implementing these reform measures is essential for the country to move towards a more open economy. Capital controls are expected to begin easing once macroeconomic conditions, such as the central bank’s international reserves and inflation, show signs of improvement. The financial institution expects this process to begin in the fourth quarter of 2024.

MSCI reviews its market classification every year, during the Market Classification Review which usually takes place in June, through a process of consultation with investors. Argentina’s next opportunity to return to emerging market indices could come in the 2025 review.Provided that the reforms implemented by the government succeed in stabilizing the country’s economic and financial prospects.

MSCI downgraded Argentina to standalone status — even outside its “frontier” emerging markets index — in November 2021, after government restrictions hit market access, raising concerns among foreign investors about being able to repatriate money.

In the last market classification review conducted by MSCI in June 2024, Argentina was not the champion. In discussions. The review focused on other markets such as Bulgaria, which could move from a standalone market to a frontier market, and on restrictions imposed by South Korea and Egypt, but the South American country remained unchanged in the standalone market category.

the Reasons why Argentina remains in the independent category This is mainly related to capital controls and the inability of international investors to access the local market since the government imposed capital controls in September 2019. These restrictions have raised concerns about the ability to repatriate funds, deterring foreign investors from participating in the local stock market.

Among the most significant obstacles are the lack of an efficient offshore currency market and restrictions on the onshore currency market, which have hampered the free flow of capital. In addition, the regulatory infrastructure also presents difficulties, as much of the basic information and documentation needed to operate in the Argentine market is available only in Spanish, complicating access for investors who do not master the language. MSCI also noted the lack of competition among local brokers and high transaction costs, which limit the market’s liquidity and attractiveness to global investors.

Other relevant factors include the instability of the institutional framework, exacerbated by government interventions that have affected the free market and generated uncertainty among foreign investors. These obstacles have been crucial for Argentina to remain in the independent category, away from emerging indices where it can attract more international investment.