Argentina is home to Latin America's third largest economy, with one of the highest gross domestic product (GDP) per capita incomes in the region. While the country's economic performance has been very volatile, the Buenos Aires Stock Exchange has become one of the region's most important securities exchanges over the past several years.
The MERVAL (MERcado de VALores) is the most important stock index in the country, making it a key barometer for the country and region's economy health. As of February 5, 2013, the MERVAL index had 13 components valued at 3,376.48. Over the past five years, the index has appreciated from about 2,000.00 towards the end of 2008 to these levels today.
Components of the MERVAL Index
The MERVAL index consists of 13 different components that were selected by market share, number of transactions and quotation price. With a base price set on June 30, 1986 at 0.01 Argentine pesos, the index is updated every three months based on market share during the previous period in order to ensure the index is adequately diversified.
As of February 5, 2013, components include:
- Aluar Aluminio Argentino SAIC
- Banco Macro SA
- Sociedad Comercial del Plata SA
- Emp. Dist. Com.Norte
- Ternium Siderar
- BBVA Banco Franc
- Grupo Financiero Galicia SA
- Pampa Energia SA
- Petrobras Argentina SA
- Tanaris SA
- YPF SA
Investing in the MERVAL Index
U.S. investors looking for exposure to the MERVAL index have a couple different options. Many exchange-traded funds (ETFs) offer exposure to Argentina's economy and are likely to be overweight in these 13 companies, while American Depository Receipts (ADRs) offer a more direct way to build exposure to some of the index's components.
Argentina's primary ETF is the Global X Funds FTSE Argentina 20 ETF (NYSE: ARGT), which includes the 20 largest and most liquid companies that directly participate in the Argentine economy, but are not listed in Argentina. Many of the companies held by the ETF are ADR versions of the members of the MERVAL index.
Some popular ADRs to directly invest include:
- Tenaris SA (NYSE: TS)
- Banco Macro SA (NYSE: BMA)
- Telecom Argentina SA (NYSE: TEO)
- YPF SA (NYSE: YPF)
- Petrobras Argentina SA (NYSE: PZE)
Important Risks to Consider
Investors should be aware of several risks before committing money to the MERVAL index components or other Argentine stocks or ETFs. From a volatile political and economic environment to high exposure to certain companies, investors should carefully weigh these risks before investing in any of the aforementioned options.
Here are some risks to consider:
- The Global X Funds FTSE Argentina 20 ETF (NYSE: ARGT) is overweight in consumer staples (35.36%) and materials (34.97%), with a 21.21% position in Tenaris SA ADS and a 17.26% stake in MercadoLibre Inc., leading to some high exposures.
- The country faces a number of geopolitical risks, including poor fiscal policy, high public debt, an unstable currency and bouts of high inflation at times, which have led to a number of revolts, including the economic collapse in 2001.
- The country's leaders have a history of intervening in the currency and capital markets in order to effect changes. For example, President Christina Fernandez de Kirchner has imposed limits on currency flows to try and artificially stem inflation.
Key Takeaway Points
- Argentina is home to Latin America's third largest economy, making it a popular investment destination for many international investors.
- Investors can build exposure with the Global X Funds FTSE Argentina 20 ETF (NYSE: ARGT) and many ADRs that trade on U.S. exchanges.
- Investors should be aware of the many risks associated with investing in Argentina, ranging from political risk to inflation risks.