The unfortunate dissonance between an emerging market country’s investment potential and the way it is ruled

Based on its strong natural resources, Argentina should, in theory, be a gold mine for investors. With arguably the third-largest shale gas reserves in the world, the Argentinean economy is only one close step behind Brazil for the top spot in South America.

So why did today an analyst quote in a NASDAQ article that on a one to 10 rating for investors, 10 being the riskiest, he would give Argentina a nine? This statement addresses one of the biggest problems with investing in an emerging market: its governance.

Argentinean president Cristina Fernandez has enacted policies that have made foreign investing in this country an uncomfortably volatile thing. Dissonance amongst varying economic growth predictions has raised suspicion of a government that could very well be laced with corruption and in potential need of reform.

In fact, it could also be possible that the Argentinean government is evading Western investment altogether, seen in their nationalization of YPF (Treasury Petroleum Fields). This move sent the only Argentina ETF down over 20 percent since mid-April (NASDAQ) and demonstrated government hostility to the free market principals.

MSCI, an investment tool and index firm, is considering the removal of Argentina from its Frontier Markets index due to the government’s aversions. What’s further unsettling is that due to their richness in mineral resources, the country hosts a few popular stocks, such as Pan American Silver and Yamana Gold. With their removal from this MSCI index, further pressure could be placed on these stocks, as well as their ETF.

Their tempting potential continues to make emerging markets alluring to investors. Its unfortunate that this potential is often overshadowed by less than stable governance, making increasing the chance of risk for investors over that of return. Do these factors make investing in emerging markets more speculation than investment?

Print Friendly

-------

Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results. Investor returns may vary from Trade Leader returns based on slippage, fees, broker spreads, volatility or other market conditions.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>