Biggest Argentine ETF May Be Ripe for Gains

Biggest Argentine ETF May Be Ripe for Gains

  • Technical indicator shows longest selling streak near reversal
  • Analysts look to MSCI ranking decision as next stock catalyst

A rebound by the largest exchange-traded fund focused on Argentina might be just getting started after it lost almost a fifth of its value this year.

The Global X Argentina ETF’s DVAN trend line -- a proprietary divergence analysis that measures buying or selling pressure -- appears ready to reverse its longest selling streak since May-October 2015. The trend line is curling positive and touching the pivot line: Once they cross, bulls would be back in charge. Another indicator, the directional movement index or DMI, shows selling momentum ebbing after a peak in May.

Argentine stocks got a boost last week when the nation secured a $50 billion credit line from the International Monetary Fund. Analysts from Morgan Stanley to JPMorgan expect the nation’s stocks will be reclassified to emerging-market status June 20 by MSCI Inc., a decision that JPMorgan Chase & Co. says could prompt $3.8 billion of inflows.

That’s not to say Argentina’s outlook is altogether rosy. Its peso tumbled to a record Monday after authorities cited the IMF credit line as a reason to step back from holding the currency to 25 to the dollar. Yet if the stock market technical indicators are to be believed, when it comes to stocks, it’s becoming increasingly risky to bet against a rally.

"One of the risks of shorting a market on a very crowded trade is that if there’s a positive catalyst, they might take you away on a stretcher due to a short squeeze," said Pablo Waldman, INTL FCStone Argentina’s head of strategy. "Given the potential for inflows if we regain emerging-market status, I wouldn’t be short on Argentine equities today."

— With assistance by Kenneth Sexton, Max Yuhas, and Elizabeth Deneen