On June 14th, 2016, MSCI announced a reclassification of Pakistan from Frontier to Emerging Market status, and that Argentina would be reviewed for potential reclassification to Emerging Market status in 2017. On May 15th, 2017, MSCI is expected to formally introduce Pakistan into the MSCI Emerging Markets Index and in June 2017 is expected to update the market regarding its decision on Argentina. The indexing firm’s stringent criteria and vetting process has been a contributing factor for why the last upgrade to the Emerging Markets index occurred back in 2014, when Qatar and the UAE were added to the index.
In the relatively rare instances when a country is upgraded to emerging market status, many market participants expect to see rising trading volumes and flows into the country. These developments are often a result of a larger pool of investors looking to gain access to the market following its reclassification. In some instances, the introduction of additional investors into the market can also positively impact the performance of the country’s stock market.
In light of the 2016 announcement from MSCI, we wanted to check in on the flows, volumes, and performance of these two countries since the announcement, based on data for the Global X MSCI Pakistan ETF (PAK) and the Global X MSCI Argentina ETF (ARGT).
Volume & Flows
Since the MSCI announcement, PAK and ARGT have both demonstrated meaningful upticks in investor interest with positive net inflows and rising volumes. Since June 14th last year, ARGT has seen net inflows of $31 million and PAK has added $24 million in inflows.1 As demonstrated in the table below, average daily volume for both funds has risen considerably. It is worth noting that the increases in volume and inflows are likely due to a confluence of factors including MSCI’s announcement, as well as the natural maturation of these funds, and growing recent interest in emerging markets more broadly.
Since MSCI’s announcement, PAK and ARGT both outperformed the MSCI Emerging Markets Index. Over this time frame, the MSCI Pakistan Index and MSCI Argentina Index were the third and seventh best performing indexes, respectively, compared to the 23 countries represented in the MSCI Emerging Markets Index.2 The performance of these two countries may be attributed to a combination of increasing foreign investment into these markets, as well as improving economic and political situations in both countries.
For investors looking to gain access to Pakistan and Argentina, the Global X MSCI Pakistan ETF (PAK) and the Global X MSCI Argentina ETF (ARGT) are the first US-listed ETFs with dedicated exposure to Pakistani and Argentinian equities.3
The performance data quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance quoted. Returns for periods greater than one year are annualized. For performance data current to the most recent month- and quarter-end, please click here: PAK, ARGT