Emerging markets fund managers are confident the fiscal programme of President Mauricio Macri's government is capable of overcoming the "short-term noise" of Argentina's current economic crisis, but warn the country faces a number of obstacles in reforming its "serial defaulter" reputation.
Head of global emerging market debt at Aberdeen Standard Investments Brett Diment said while Argentine assets are "likely to come under further pressure should the global risk-off environment persist", opportunity is available through "valuations on domestic and external debt [which] are optically very cheap having overshot our worst-case scenarios".
Describing Argentina's debt as "sustainable", he added: "After a short-term lag, there's scope for a relief rally if the government can deliver on fiscal consolidation".
However, Diment warned the necessity for the Macri government to focus on "delivering a credible fiscal adjustment", could have implications for the President's re-election prospects in 2019.
He explained: "Markets will look through the short-term noise if they believe the fiscal adjustment is credible and the debt is sustainable, which is our base case.
"If the external environment continues to deteriorate however, and a market-unfriendly candidate emerges as the favourite in 2019, there may be downside risks to holding Argentine assets."
Jan Dehn, head of research at Ashmore Group, warned the range of measures to save Argentina's faltering economy may not be sufficient in overcoming innate problems in its political system.
He explained: "Argentina's recurring fiscal problems are rooted in the country's Constitution, which guarantees that the central government is too weak to withstand spending pressures, let alone reverse them.
"While IMF disbursements can help the government to buy some time, the IMF is powerless to solve the constitutional problem. That is why Argentina is a serial defaulter."
Earlier in the summer, MSCI announced the reclassification of the MSCI Argentina Index from Frontier Markets to Emerging Markets status from June 2019, having downgraded it in 2009 after previous President Cristina Fernandez de Kirchner imposed capital controls.
MSCI said it would again review its decision if Argentina re-introduces such or puts restrictions on its currency's movement.
The MSCI Argentina index is down 24.8% from 1 January to 3 September, according to FE. In a difficult year for emerging markets, the MSCI EM index is down 4.5%, while the MSCI Frontier Emerging Markets index is down 5.2% over the same period.
Managers in the IA's Global Emerging Markets bond and equities sectors have also fared poorly on average over the period, down 5.4% and 5.9% respectively.
Tim Love, investment director, emerging market equities at GAM Investments said despite recent problems in Argentina and emerging markets more generally, the firm was focusing on exploiting "the price distortions and run the volatility".
He added: "We are holding our nerve and sticking to our philosophy (without succumbing to style drift) in the belief that disciplined active investment in EM yields positive results over time."
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