Surprise! Argentina ETF Returned 12% Per Year And One High Growth Stock To Watch
I was examining the mid-year performance of country indexes and was pleasantly surprised by the notable leaders. Nigeria, Greece, and Argentina emerged as the top three, achieving impressive returns ranging from 35.6% to 50.5%!
What's even more remarkable is that these returns are measured in USD, not their respective domestic currencies. This implies that the gains in share prices managed to outweigh the losses caused by foreign exchange rates. For instance consider Nigeria, whose currency the Nigerian Naira, has depreciated against the US Dollar by 42% year-to-date. Had the MSCI Nigeria Index been priced in its own currency, it would have surged by nearly 100% in the first half of 2023.
A similar situation can be observed in Argentina, where the Argentine Peso weakened by 32% against the US Dollar during the same period. This indicates that the MSCI Argentina Index would have seen a growth of almost 70% in the first half of 2023 if it were denominated in its domestic currency.
Greece, on the other hand, benefited from greater currency stability by using the EUR.
It would be surprising for most people to consider these three countries as the top performers in the first half of 2023, given the problems they are currently facing. Nigeria and Argentina, in particular, have been grappling with severe issues such as hyperinflation, which shows no signs of improvement. Nigeria's inflation rate stands at 22.4%, while Argentina's is at a staggering 114%!
Even with elevated interest rates, attempts to curb inflation have been unsuccessful. Nigeria's interest rate is at 18.5%, while Argentina's is at 97%. It's difficult to fathom the idea of taking a loan with an interest rate close to 100%.
Interestingly, despite the discouraging effects of high interest rates on lending and economic growth, Nigeria is still projected to experience a GDP growth rate of 3.2%, while Argentina's growth rate is expected to be 0.2%. This is perplexing and highlights the relatively favorable situation in the United States.
Furthermore, Greece's unresolved sovereign debt issue remains a concern, with a debt-to-GDP ratio of 171.3%, significantly higher than the pre-2008 Great Financial Crisis level of around 100%.
However, we should take the half-year stock performance with a pinch of salt because the timeframe is too short. When considering the multi-year performances of these three countries, it becomes evident that investing in the Nigeria ETF has not been fruitful. Over a period of more than 10 years, an investor would have experienced an average annual loss of 12% by holding the ETF. Similarly, the Greece ETF has yielded a minimal annual loss of 0.2%. However, Greece has shown promise for investors who entered the market within the last 3 years.
On the other hand, we can identify a potential winner in Argentina. The Global X MSCI Argentina ETF has delivered impressive returns of 12% per year, which is comparable to the S&P 500 ETF over the past 10 years.
It's quite astonishing to consider Argentina's consistent struggle with hyperinflation. Perhaps the World Cup and the effect of Messi are playing a role here, but jokes aside, I delved deeper into the holdings of the MSCI Argentina Index to gain a better understanding of what is driving the country's stock performances.
The top six constituents of the MSCI Argentina Index account for 53% of its total weightage. Two stocks in particular have significantly contributed to the index's performance: MercadoLibre and Pampa Energia, which have delivered remarkable returns of 901% and 1,147% respectively over the past decade.