Argentina's Economic Recovery Under President Javier Milei: A Long-Term Rebuild Amid Short-Term Hesitation

Argentina's economic recovery under libertarian President Javier Milei's reforms is remarkable. Global X MSCI Argentina ETF (ARGT) has seen a long-term rebuild, but short-term hesitation. The ETF's performance has been positive, but investors should be cautious due to the volatile nature of Argentine markets.

Argentina's economic recovery under libertarian President Javier Milei's reforms has been remarkable. The country's GDP expanded by 5.8% year-over-year in Q1-2025, and economic activity jumped by 7.7% in Q2-2025 compared to the same period last year [1]. Inflation, a chronic problem, has slowed down sharply, falling below 40% per year in June, when it reached 211% in 2023 [1]. The Milei government has successfully implemented austere fiscal policies, reversing historic deficits, and cutting subsidies, resulting in a gradual downsizing of the state apparatus.

However, Argentine equities, well represented globally by the Global X MSCI Argentina ETF (ARGT), have been disappointing throughout 2025. The markets are in a "wait-and-see" mode due to growth pace falling slightly below high expectations, alongside short-term external imbalances and FX headwinds [1]. Long-term shareholders of ARGT have benefited, with gains of more than 210% over the past three years, but those who arrived in 2025 have seen meager returns.

The poor performance of ARGT in 2025 can be explained by several factors. The first is the "hangover" from the massive appreciation between 2023 and 2024, pushed by the Milei effect. Additionally, the break in the fiscal recovery tune in Q1-2025, with a deficit of US$5.2 billion compared to a small surplus of US$0.2 billion in Q1-2024, has contributed to the underwhelming performance [1]. The weak trade surplus and increased imports have also played a role.

The Argentine peso (ARS) has appreciated too much, making it artificially expensive and discouraging exports while stimulating imports and foreign tourism. To address this, the Milei government ended the "cepo cambiario" in April, allowing the exchange rate to fluctuate [1]. This has led to initial stabilization but also to a subsequent depreciation of the ARS by more than 15% over the last three months.

Despite the evident improvement, disinflation should not be linear. Monthly CPI inflation fell to 1.5% in May 2025, the lowest since May 2020, but the expectation is for a slight acceleration in the coming months [1]. The outlook for annual inflation is 28.6% by the end of 2025, driven by the initial expectations of a weaker ARS versus the USD and high demand for USD from tourism abroad.

The sectoral impact on the country's economy, directly linked to Argentine equities, tends to be beneficial for the financial, energy, infrastructure, basic consumption, and utilities sectors. However, companies such as MercadoLibre (MELI), which occupies a significant share of ARGT, are less sensitive to Argentina's macroeconomic swings due to their core operations in Brazil [1].

From an earnings perspective, ARGT trades at ~21x P/E today, versus ~18x last year, suggesting that earnings have not followed the rally, indicating good future expectations. The P/B ratio has fallen from 2.4x to 2.2x, suggesting that Argentine equities' equity has grown with the improvement of the economy.

In conclusion, Argentina's economic recovery under Milei's reforms is impressive, but the ARGT ETF's performance has been mixed. Investors should be cautious due to the volatile nature of Argentine markets and the short-term hesitation in the recovery process.

References:
[1] https://seekingalpha.com/article/4807269-argt-long-term-rebuild-short-term-hesitation