T. Rowe Price T. Rowe Price Trusty Logo

Price Point - In Brief

Frontier Markets

Argentina Stumbles but Remains a Viable Investment

Oliver Bell, Portfolio Manager, Frontier Markets Equity Strategy

Executive Summary

  • We believe Argentina's recent actions to stabilize its currency will help the country restore investors’ confidence and continue with its longer-term reform agenda.
  • While seeking loan support from the IMF will cost President Macri some political capital, we believe it was the right thing to do and will not cripple his chances for reelection in 2019.
  • Short-term volatility and uncertainty can be a friend to patient, long-term investors. We have been cautiously leaning into market weakness and selectively adding to some of our high-conviction positions.

We believe Argentina’s recent actions to stabilize its currency, including central bank interest rate increases and obtaining International Monetary Fund (IMF) assistance, will help the country recover from recent policy missteps, restore investors’ confidence, and continue with its longer-term reform agenda. Since the election of President Mauricio Macri in late 2015, Argentina has made great strides in recovering from years of economic mismanagement. Macri and his team have implemented various policies and reforms that have boosted the economy and reopened the country to the global marketplace. These efforts have also made the government better situated to deal with macro and financial issues, which boosts our confidence in Argentina’s structural changes and its ability to attract foreign investment capital.

Unfortunately, Argentine financial markets have struggled in 2018 due to a combination of deteriorating investor sentiment and relatively minor policy mistakes in late 2017 and early 2018. Specifically, the central bank lifted its 2018 inflation target and prematurely reduced interest rates. The peso, in particular, has fared poorly due to increased inflation expectations.

In an initial attempt to restore its credibility and arrest the peso’s decline, the Argentine central bank used some of its foreign exchange reserves to defend the currency. This proved to be difficult, especially given the headwinds of a strengthening U.S. dollar and rising U.S. interest rates. Then, in a more orthodox policy move, the central bank raised interest rates three times in one week, lifting its key interest rate to 40%, an extraordinarily high level, to re-anchor inflation expectations.

Simultaneously, the government announced a tightening of fiscal policies and initiated discussions with the IMF to seek and secure loan support. The IMF has endorsed the government’s economic reform efforts and recently agreed to provide a USD $50 billion credit line to Argentina in exchange for the acceleration of some reforms. While reaching out to the IMF will cost Macri some political capital, given bad memories stemming from the country’s prior dealings with the IMF, we believe it was the right thing to do. The speculative momentum driving the peso lower needed to be stopped, and IMF involvement helps to anchor investors in Argentina. We also believe turning to the IMF will not cripple Macri’s chances for reelection in 2019. This move was needed to stabilize the current situation and immediately restore the government’s credibility with investors. The IMF fiscal plan seems to factor in that there are important elections toward the end of next year and should allow Macri to regain popular support in time for the elections.

Opening Quote Short-term volatility and uncertainty may be unsettling at times, but we believe it can be a friend to patient, long-term investors. Closing Quote

While the government’s recent actions have helped stabilize Argentina’s financial markets somewhat, and while MSCI’s recent decision to return Argentina to the emerging markets universe next year boosts investor confidence, uncertainty is likely to linger, in our view, and Argentine assets could be periodically volatile. Indeed, the country still has some significant hurdles ahead of it. Pension reform, for example, is necessary to bring the fiscal situation under control. Elevated inflation also needs to be tamed—though it may take longer than previously expected.

Short-term volatility and uncertainty may be unsettling at times, but we believe it can be a friend to patient, long-term investors. In response, our frontier equity and emerging markets bond portfolio managers have been cautiously leaning into market weakness and selectively adding to some of their high-conviction positions. We are confident that the underlying macroeconomic backdrop in Argentina is still much healthier than it was a few years ago and that the country’s medium-term outlook remains favorable.

Important Information

This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.

It is not intended for distribution to retail investors in any jurisdiction.

USA—Issued in the USA by T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, MD, 21202, which is regulated by the U.S. Securities and Exchange Commission. For Institutional Investors only.

T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc. © 2018 T. Rowe Price. All rights reserved.



Tap to dismiss


Latest Date Range
Audience for the document: Share Class: Language of the document:
Download Cancel


Share Class: Language of the document:
Download Cancel
Sign in to manage subscriptions for products, insights and email updates.
Continue with sign in?
To complete sign in and be redirected to your registered country, please select continue. Select cancel to remain on the current site.
Continue Cancel
Once registered, you'll be able to start subscribing.

Change Details

If you need to change your email address please contact us.
You are ready to start subscribing.
Get started by going to our products or insights section to follow what you're interested in.

Products Insights

GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

Other Literature

You have successfully subscribed.

Notify me by email when
regular data and commentary is available
exceptional commentary is available
new articles become available

Thank you for your continued interest