The Buenos Aries Stock Exchange’s Merval Index shed 2,491 points to end the day down 8.26 per cent, its largest one-day drop since 2014, according to Thomson Reuters data.
All of the Merval’s major sectors ended in the red, with financials tumbling more than 10 per cent to be among its worst performers. The fall comes after Argentina’s central bank announced earlier that it was raising bank reserve requirements by 5 percentage points in a move designed to absorb about 100bn pesos from the financial system, according to Reuters.
The Argentine peso, however, benefited from the move, halting its slide and ending the day about 2 per cent stronger to 27.57 per dollar. The peso has been volatile in the past few sessions, after Argentina replaced its central bank president with finance minister Luis Caputo.
Argentina’s recent economic turmoil has prompted its central bank to unexpectedly hike rates to 40 per cent to try to stop the peso from falling any further. It recently went to the International Monetary Fund for a lifeline, agreeing to a $50bn rescue package.
But Argentina isn’t just grappling with its own issues — it has also been caught up in a wider emerging market sell-off as investors worry that global economic growth will be stymied by the escalating spat between the US and China, and as Argentina grapples with weakening markets in nearby Brazil.
Jorge Marsical, chief investment officer for emerging markets at UBS, said in a report on Monday.
“Risks to our positive view on Argentine assets also stem from the external environment: Pressure on emerging markets remains high, and investor sentiment toward emerging market assets has markedly worsened in recent weeks. Brazil, one of Argentina’s largest trading partners, is facing increasing domestic challenges, and a further cooling-off in its economic activity would impact its smaller neighbour. The external environment has indeed worsened in the week following the agreement with the IMF. The USD has strengthened against most world currencies as the outcome of the last Federal Reserve meeting proved more hawkish than expected, and the last European Central Bank meeting more dovish than expected. Increased trade tensions further damped investor appetite toward emerging markets.”
And if that weren’t enough, Argentina is also bracing for a widely watched decision later this week on whether it will win back its status as an emerging market in the influential MSCI benchmark equity index. Whether it is welcomed back to the group or shunned again is likely to prove another make-or-break moment for the country’s stocks.
Date: 18 June 2018