Argentina “demoted” to frontier status

Despite the fact that its benchmark Merval index is up over 50% this year–making it the world’s fifth-best performer according to Bloomberg–Argentina lost its position in the benchmark emerging-market stock index this past week and joined MSCI Inc.’s “frontier” category, a classification based on a given market’s size, liquidity and economic development.  Analysts told Bloomberg that the change “may lure funds to the nation and extend a three-month equity rally,” especially those portfolio managers who are feeling the start of a new secular bull market in commodities–crude, for instance–and those who are betting that the government’s days of defaulting on debt are fin.

“‘You’re getting fresh eyes with frontier investors taking a look at Argentina,’ said Paul Herber, who helps manage $5 billion at Forward Management LLC in Seattle, including the Accessor Frontier Markets Fund, and plans to buy Argentine shares. ‘We’re not looking to take any heroic bets in Argentina but we’re certainly comfortable with a market weight.’”

Index rally aside, there is still plenty in Argentina to be weary of.  Economist noted last month, for example, that “amid 17-19% inflation, the government of President Cristina Fernández de Kirchner is trying to control the prices of some locally consumed foodstuffs by sporadically preventing their export.  But agriculture earns Argentina much of its sorely needed foreign currency, so for produce that is allowed to leave the country Ms. Kirchner has hiked export taxes as high as 35%.”  Such policy is hardly assuring.

MSCI Inc. tabs Serbia, Lithuania to join index; Ghana, Botswana likely next

MSCI, a New York-based index provider, announced this week that Serbia and Lithuania will join its 19-member Frontier Markets Index after the close of trading on Nov. 25. In addition, Ghana, Botswana, Jamaica and Trinidad & Tobago may also gain “frontier market” status by May 2009, the index provider said. The classification was created by MSCI for stock markets that have less-developed economies and financial markets than emerging markets, and that typically have more restrictions on foreign stock ownership.

Some of these nation’s more notable firms, per Bloomberg, include:

• Lithuania’s AB TEO LT, the country’s biggest communications company, and AB Rytu Skirstomieji Tinklai, the operator of power grids in eastern Lithuania. Shares of both Vilnius-based companies have fallen 40 percent and 51 percent, respectively, this year.
• In Serbia, the Belgrade-based Komercijalna Banka AD, the country’s biggest bank by market value which has lost 71 percent of its value this year, and AIK Banka AD, which has dropped 72 percent in 2008.