Bloomberg – Despite last year’s currency crisis and economic contraction, Argentina still expects its stock market will return to the foreign investors’ radar in 2019.
Bolsas y Mercados Argentinos SA, or BYMA, the operator of the largest stock exchange in the country, has started a new plan to convince the index provider MSCI Inc. to include local stocks in the “emerging” category from its current “frontier” level.
“We must pray for the macro to improve and have more liquidity,” says, Ernesto Allaria, BYMA’s president.
On June 20 last year, MSCI said that starting in May, Argentine shares listed abroad will be considered as “emerging”, increasing the possibility that these securities will be acquired by large global institutional funds. The following day, Argentina’s trading volume rose to ARS2,973 million, from an average of ARS1,000 million in the previous month. But since then the average trading daily volume fell, reaching to ARS430 million in December, exposing the limited liquidity of the local market.
BYMA will try again to have the local common shares added into the Emerging MSCI index, so that the local market can also capture the positive effects of the upgrade.
The strategy is to advance with three additional steps:
1. Imitate Peru
“We started a path to talk more with the MSCI and make sure that all of our developments are known by foreign investors,” said Alejandro Berney, BYMA CEO. “This road is similar to what Peru did and it was successful,” he said.
Faced with the threat of losing the “emerging” MSCI index status and begin to be considered a “frontier”, Peru implemented an aggressive international strategy. The government engaged in roadshows with institutional investors “to identify what were the necessary measures to strengthen liquidity and implement them,” said Daniel Cordova, the head of Equity Research, at Credicorp Capital Peru.
BYMA believes two initiatives implemented last year, such as short selling and securities lending, were not taken into account by MSCI in its June decision.
2. Eliminate intermediaries
BYMA is in talks with international banks such as Citibank, Santander and HSBC, so these institutions can settle the buy-sell operations of clients overseas. The move seeks to prevent foreign investors from making cash transfers through agents or local brokers that they consider risky or with reduced patrimony.
“This makes the liquidation environment less risky for all investors, the foreigner is very demanding and especially in markets with small brokers,” Berney said. BYMA’s idea is to have the banks acting as clearing providers.
3. Shortening times
In a second stage, BYMA also wants to achieve the buy-sell of shares against the total payment at the time of the transaction -on delivery versus payment-, instead of being “netted” to the end of the day. By doing so, foreign investors will transfer their money only when the shares are actually entered into the clearing system, reducing the operational risk.
“These are tools and standards that we know must be fulfilled so foreign investors will have the same choices they get in international markets,” said Ingrid Collazo, the head of custody at Citibank in Argentina, an institution that plans to sign an agreement with BYMA soon. “Technically, the conditions meet the criteria required to be emerging, the biggest difficulty is the political uncertainty generated by an electoral year,” she added.
Argentina reintenta MSCI mejore acciones locales a “emergentes”
— With assistance by Carolina Millan