U.S. Tells North Korea It Is Prepared to Go to War

Pyongyang claims a further breakthrough toward a nuclear-tipped missile that can reach American cities

By Jonathan Cheng

South Korean and U.S. missile systems firing in a joint drill Wednesday—‘countering North Korea’s destabilizing and unlawful actions on July 4,’ the two militaries said. Photo: Handout/Getty Images

SEOUL—The U.S. warned North Korea that it is ready to fight if provoked, as Pyongyang claimed another weapons-development breakthrough following its launch of an intercontinental ballistic missile a day earlier.

The regime, having demonstrated its capacity to reach the U.S. with a missile, on Wednesday touted another achievement of the test launch: It claimed that its missile warhead—the forward section, which carries the explosive—can withstand the extreme heat and pressure of re-entering the earth’s atmosphere.

If true—the claim couldn’t be independently verified—that would clear another hurdle in developing a nuclear-tipped missile that can reach American cities.

As tensions between Washington and Pyongyang rose, Gen. Vincent Brooks, the top American military commander in South Korea, said in a statement Wednesday that the U.S. and South Korea are prepared to go to war with the North if given the order.

“Self restraint, which is a choice, is all that separates armistice and war,” Gen. Brooks said. “We are able to change our choice when so ordered.…It would be a grave mistake for anyone to believe anything to the contrary.”

Earlier in the day, allied armies conducted a rare live-fire drill, launching tactical surface-to-surface missiles off the east coast of Korea—an action they said was aimed directly at “countering North Korea’s destabilizing and unlawful actions on July 4.”

The drill and tough language appeared meant to reassure Seoul after North Korea’s successful ICBM test, a significant advance.

Secretary of State Rex Tillerson described the development as an escalation of the threat to the U.S. It came despite years of sanctions and warnings aimed at preventing Kim Jong Un’s regime from reaching the milestone.

Washington has considered military action against North Korea, but pulling the trigger presents serious risks. Seoul, a city of 10 million, sits just 35 miles from the North Korean border, where Pyongyang has assembled artillery that could inflict devastating damage on the densely populated South Korean capital.

“A single volley could deliver more than 350 metric tons of explosives across the South Korean capital, roughly the same amount of ordnance dropped by 11 B-52 bombers,” said a report published last year by Austin, Texas-based geopolitical consultancy Stratfor.

If attacked by the U.S., North Korea would also likely fire on U.S. ally Japan, which is within range of many of Pyongyang’s missiles. During one launch in March the North fired four missiles at once toward Japan, which some analysts interpreted as a warning that it could overwhelm any Japanese missile defense.

Meredith Sumpter, director of Asia for Eurasia Group, wrote in a note to clients Tuesday that the odds of a U.S. military strike on North Korea remain low—about a 10% probability—adding it would probably be well-signaled by the U.S. and “clear to outside observers in advance of any military move.”

A report published Wednesday in North Korea’s official state media said the warhead its missile carried Tuesday maintained a steady temperature and held its structure even “during the harshest atmospheric re-entry environment.”

The Threat From North Korea’s Missiles

Pyongyang has accelerated its tests of missiles and nuclear bombs as it tries to develop a nuclear-armed missile that could hit the U.S. mainland

For a missile to cross the Pacific Ocean, it must exit and then re-enter the atmosphere. Re-entry puts incredible stress on the warhead.

The U.S. had sought Beijing’s help in pressuring North Korea, but recently President Donald Trump indicated that route had been fruitless. “Trade between China and North Korea grew almost 40% in the first quarter. So much for China working with us - but we had to give it a try!” he said in a tweet on Wednesday.

A Chinese customs official told a news conference in April that China’s bilateral trade with North Korea in the first quarter had increased by 37.4% to 8.4 billion yuan (about $1.2 billion). He didn’t specify if that was a year-on-year comparison.

Chinese customs figures show that bilateral trade continued to expand in April and May on a year-on-year basis, but that doesn’t mean more revenue for North Korea: The second-quarter increase was driven by China’s exports. Its imports from its neighbor declined in April and May, compared to those months last year, due in large part to Beijing enforcing a ban on North Korean coal.

The United Nations Security Council is scheduled to hold a meeting on North Korea later Wednesday, following a request from Nikki Haley, the U.S. ambassador to the U.N.

South Korean President Moon Jae-in, who has called for more dialogue and closer economic ties with North Korea, on Wednesday called on global leaders to step up sanctions against North Korea, urging a peaceful resolution to the conflict.

He was speaking during joint statements in Berlin with Chancellor Angela Merkel, who said North Korea “poses a big threat to global peace.”

The U.S. has been making shows of force in recent months in response to perceived increases in tension on the Korean Peninsula. In April, it said it was sending the USS Carl Vinson carrier strike group to the western Pacific to underscore Washington’s commitment to the region. In that case, the announcement instead raised questions about U.S. credibility after it came to light that the aircraft carrier was thousands of miles away.

And twice in May, the U.S. sent B-1B bombers on flyovers near the Korean Peninsula. Each came shortly after a North Korean missile test.

—Jeremy Page in Beijing contributed to this article.

Does Addressing Bilateral Trade Imbalances Work?

Martin Feldstein

china trade

CAMBRIDGE – Politicians and economists view trade imbalances very differently. Consider the United States’ trade deficit. Economists emphasize that the total US trade deficit with the rest of the world is the result of policies and actions at home. Simply put, if the US invests more than the country as a whole saves, it must import the difference from the rest of the world, creating the existing trade deficit.
But politicians (and the general public) tend to focus on bilateral trade deficits with individual countries, like the $300 billion imbalance between the US and China. They blame the bilateral deficit on Chinese policies that block imports of US products and subsidize Chinese exports to the US.
Economists explain that those policies affect the composition of the US trade imbalance, but not its size. If China changed its trade policies in ways that reduced the bilateral deficit, the US trade deficit with some other country would increase, or its surplus with some other country would shrink. The overall US trade deficit with the world, however, would not change.
Economists also like to stress that free trade raises a country’s overall income. There are winners and losers, but the winners from free trade could in principle compensate the losers by enough to make everyone better off. Economists don’t talk very much about such compensation, because governments don’t do much to arrange it for the losers.
The US has policies like the Trade Adjustment Assistance program, which provides more generous unemployment benefits for workers who lose their jobs because of competition from imports. But the federal government doesn’t provide such assistance on a large scale, presumably because it makes no effort to provide compensation to those who lose their jobs because of technological change. And rightly so.
Imports cause losses to particular industries, occupations, and geographic areas. And those who lose – or stand to lose – from imports demand protectionist measures, in the form of tariffs or quotas, against those specific products. Adam Smith recognized this even before David Ricardo explained the virtue of free trade.
We saw this response explicitly in US President Donald Trump’s election campaign, during which he threatened to impose high tariffs on products from China, Mexico, and other countries.
But now that he is president, those high tariffs or quotas are nowhere to be seen. Instead, we see trade negotiations being conducted under the threat of such tariffs – and leading to market opening for some products and services in countries with which the US has a bilateral deficit.
China is a good example. After originally threatening a variety of negative changes in US policy toward China, Trump invited Chinese President Xi Jinping to his Florida estate for what both countries agree was an amicable visit. After that, the Chinese agreed to start importing US beef this summer, rescinding protectionist policies that had been in place for several years. China also agreed to open its market to a range of US financial services. And the US agreed to sell natural gas to China, something that the Chinese wanted but that the US previously had refused to do.
The result of these policy changes will be to reduce the US trade deficit with China. Although this will not change the overall US trade deficit, it will raise the real incomes and profits of US producers of beef, financial services, and natural gas. Chinese consumers will also benefit.
So, in this case, the focus on the bilateral trade imbalance has led to desirable policy changes, even though the US trade deficit with the world will not decline.
But negotiations in response to bilateral trade imbalances may not always have positive effects.
The US is currently threatening to impose tariffs on softwood lumber from Canada. If the US does impose such tariffs, the result would be a reduction in the US-Canada trade imbalance.
But the tariffs would hurt American builders and homeowners, as well as Canadian timber companies.
The bottom line is that bilateral trade imbalances are not irrelevant and can be useful in directing attention to policies that reduce the real incomes of consumers and businesses. But remedying those bilateral imbalances has to be approached with caution.

Dollar Doom and Gloom Looks Overdone

By Anjani Trivedi

The U.S. dollar’s performance has been anti-climactic this year, dropping 4% against a basket of major currencies. But investor pessimism may have gone too far.

Of course, there is still good reason to root for other currencies. The Trump administration’s lack of policy mojo aside, global economic data has proven unexpectedly robust, posting the longest run of positive surprises in six years. But as investors cheer a reflating global economy, they may be dumping too many dollars: For the first time in more than a year, U.S. dollar positioning, according to data from the Commodity Futures Trading Commission, has flipped from net long to net short.

Excessive pessimism about the dollar creates its own worry for emerging markets due to the danger of sudden swings back. During the past few years of low U.S. interest rates, governments and companies in developing countries have gotten used to borrowing heavily in dollars. Any resurgence for the dollar would raise the cost of that borrowing in local currency terms.

Such a move seems more likely when you consider that foreign exchange movements are generally driven by divergent expectations for growth and interest rates. Currencies of countries whose growth forecasts had been upgraded the most this year, such as Mexico and Poland, outperformed over the last quarter, according to J.P. Morgan strategists.

Investor pessimism about the U.S. dollar may have gone too far.

Investor pessimism about the U.S. dollar may have gone too far. Photo: © gary cameron / reuters/Reuters 

The positive vibe around emerging-market currencies should ease as the premise for it weakens. The proportion of developing countries receiving growth upgrades has fallen to just over 40% from 60% in the past month, based on J.P. Morgan’s rolling measure. Asia—a driver of emerging-market growth earlier this year—is losing steam, with industrial production growth dropping to its lowest point in more than a year everywhere except China. Adding to signs of strain, downgrades of emerging-market debt have accelerated.

The U.S. economy isn’t on a tear, but growth elsewhere hasn’t found as firm a footing as investors seem to believe. There is still a 50% chance the Fed will raise rates once more by December, another factor that should be dollar-positive. Jitters are emerging: a stark repricing of currencies last week after central bankers talked about tightening policy led to the largest-ever one-day outflow from the biggest emerging market hard-currency ETF last Thursday, with $343 million being withdrawn, according to J.P. Morgan. That, though, compares with inflows of $14 billion so far this year, meaning there is scope for plenty more outflows.

No matter how fast-footed, investors should remember reversals in sentiment can happen fast.

It's 1999 All Over Again

by: William Koldus, CFA, CAIA


- The U.S. equity market resembles the late 1990s.

- Growth has been prized over value since 2007.

- Value investments are set to outperform over a multi-year period.

"A 60:40 allocation to passive long-only equities and bonds has been a great proposition for the last 35 years ... We are profoundly worried that this could be a risky allocation over the next 10." - Sanford C. Bernstein & Company Analysts (January 2017)
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” - Sir John Templeton
"Life and investing are long ballgames.” - Julian Robertson
(Source: Author’s Photo, Vintage 1999 Hat)
Time, which is our most valuable resource, has been flying by.
In August, I will turn 40, and I have been actively investing/speculating from the time I was 13, when I took my savings from a paper route that I had accumulated since I was 9, and put them into the stock market, with the help of my now deceased father.
Since 1990, there have been many cycles in the stock, bond, and commodity markets, yet as I firmly approach the hallowed threshold of middle age, with children that are approaching the age I was when I started investing, there is an eerie resemblance to the late 1990s.
Specifically, there is a dichotomy between growth and value that I never thought I would see again.
In summary, growth stocks have been prized for the past ten years, ironically ever since the 2007-2009 bear market, and today, they are at a historically overvalued level versus their value counterparts.
Value stocks are relatively cheap versus growth stocks in a historically frothy market.
Growth Stocks Leading Value Stocks in 2017 and Since 2007
After a brief resurgence in 2016, value stocks have once again been lapped by their growth counterparts.

The iShares Russell 1000 Growth ETF (IWF) is up 14.1% in 2017, while the iShares Russell 1000 Value ETF (IWD) is up 3.1% year to date.
(Source: William Travis Koldus, StockCharts.com)
Over the past decade, the out-performance of growth versus value is even more delineated in the large-cap arena, with the iShares Russell 1000 Growth ETF posting a 130.2% return, while the iShares Russell 1000 Value ETF has only returned 65.0%.
(Source: WTK, StockCharts.com)
In the smaller capitalization stocks, the story is the same, as the iShares Russell 2000 Growth ETF (IWO) has outperformed the iShares Russell 2000 Value ETF (IWN), 10.9% to -0.6% in 2017.
(Source: WTK, StockCharts.com)
The story over the last decade is the same, as the iShares Russell 2000 Growth ETF has returned 114.5%, while the iShares Russell 2000 Value ETF has gained 71.3%.
(Source: WTK, StockCharts.com)
Growth stocks were the market darlings of the 1990s, and this pushed up their valuations, while value stocks were generally out-of-favor. Value stocks had their day in the sun from 2000-07, but since then, growth stocks have once again outperformed, in a world starved for growth as the chart below illustrates.
(Source: WTK, StockCharts.com)
The end result is that we are approaching the late 1990s relative valuation discount of value stocks versus their growth counterparts.
FAANG Stocks Lead
The S&P 500 Index, as measured by the SPDR S&P 500 ETF (SPY) has had a very strong year thus far, posting a gain of 9.8% with dividends included in this performance figure.
The largest capitalization growth stocks, however, have trounced this figure year-to-date.
Facebook (FB) is up 34.8%, Apple (AAPL) is up 27.4%, Amazon (AMZN) is up 33.4%, Netflix (NFLX) is up 27.6%, Alphabet (GOOGL), (GOOG), is up 24.4%, Tesla (TSLA) is up 79.4%, NVIDIA (NVDA) is up 44.5%, and Microsoft (MSFT) is up 16.0% in 2017.
(Source: WTK, StockCharts.com)
Apple, Alphabet, Microsoft, Amazon, Johnson & Johnson (JNJ), Facebook, and Exxon Mobil (XOM), in the order they are listed, are the seven largest market capitalization companies in the S&P 500 Index as I pen this article.
With passive fund flows surging, the largest market capitalization companies are attracting a greater percentage of invested capital.
In 2016, according to Morningstar, passive strategies saw inflows of $428.7 billion, while active strategies saw outflows of $285.2 billion. This pattern of fund flows has accelerated in 2017, as fiduciary rules changes, and the outperformance of the largest equities alongside passive strategies, have combined to create an irresistible temptation for investors.

While active strategies still hold more overall assets than passive strategies, an increasing number of active strategies closely resemble index funds, so the amount of true actively managed money is very low historically, perhaps near an all-time low (in my opinion).
Building on this narrative, ETF fund flows, which are mostly allocated to passive strategies, are surging past $4 trillion in invested assets, and they are potentially on their way to $10 trillion.
Another Look at Growth Stocks Since 2007
We mentioned earlier that growth stocks have outperformed their value counterparts since 2007, and this can be seen in the following chart, which was shown in the first section that compared value and growth returns.
(Source: WTK, StockCharts.com)
The outperformance by the largest five growth stocks over the past decade, specifically Apple, Alphabet, Microsoft, Amazon, and Facebook, which are also five of the six largest stocks in the S&P 500 Index (Facebook is neck-and-neck with JNJ), is staggering, as the following chart shows.
(Source: WTK, StockCharts.com)
Amazon shares lead the pack, with gains of 1341%, Apple shares have gained 815%, Facebook shares, in a more limited time frame due to their most recent IPO, have gained 308%, Alphabet shares have gained 283%, and Microsoft shares have gained 201%, all trouncing the gains of SPY, which has risen a still very strong 97% over the past ten years.
The Takeaway - a Circular Flow of Capital Creates Opportunities
As index and ETF strategies, which are often passive, gain prominence, more and more capital flows into the largest capitalization equities. Additionally, with a majority of individual and professional investors chasing performance, due to the strength and duration of the current bull market since March 2009, the concentration of capital into the best performing equities is further accelerated.
Does this sound like the late 1990s investing landscape?
I will answer this for you, this is exactly what happened in the late 1990s, when legendary value investors like Warren Buffett of Berkshire Hathaway (BRK.B), (BRK.A), Julian Robertson, and Jeremy Grantham all materially trailed the performance of the broader market by a significant degree, and each of these acclaimed investors lost a significant number of clients and a significant number of client assets. Julian Robertson even famously closed his hedge fund.
In fact, at one point in March of 2000, Berkshire Hathaway was down roughly 50% while the NASDAQ 100 (QQQ) was up 270%.
(Source: WTK, StockCharts.com)
Building on the narrative above, due to the out-performance of the S&P 500 Index in 2017, and from 2009-2017, an increasing number of active managers have become "closet indexers," which essentially replicate the index assets while charging a higher fee.
This quote from a March 1st, 2011, article (think about how much more the situation has accelerated today), which was titled, "The Rise Of The Closet Indexers," highlights how fast active funds have re-purposed to mirror their benchmarks:
A couple of decades ago there were essentially no 'closet index' funds, says Martijn Cremers, a professor of finance at the Yale School of Management who worked with Petajisto on a previous study of this issue. But as index investing has become more popular, individual investors have become 'more benchmark aware,' he says.  
'Your performance relative to the benchmark has become more salient.' As a result, investors are now quicker to bail out of funds if they fall short of their benchmark indexes, creating an incentive for managers to at least match their benchmarks -- and a disincentive to make big bets that could go wrong, Cremers says…
In summary, the end result of this circular flow of capital is that the amount of "true" actively managed money today, is much less than it has been historically. Simply put, there is real career risk in being an active manager, and being significantly different than indexes. And, when everyone is crowded in the same trades, in the same stocks, perhaps that is the time to be different?
To close, I know my answer to this open-ended question, and I will let readers follow the logic and their brains to get to their answer.
The investment landscape is changing, and if you are interested in joining a unique community of contrarian, value investors, and would like to see all of the historical trades and current positioning of the "Bet The Farm" and the "Best Ideas" Portfolios, please consider signing up for my premium research service, "The Contrarian." This service has been well reviewed by its members, and I believe we are once again at a unique inflection point in the financial markets, for the third time in the past two decades.
The wide dispersion of returns in 2017 has created a second chance opportunity, in my opinion, and I am discussing this potential opportunity at the upcoming DIY Investor Summit. If you are interested in hearing a portion of my thoughts alongside eight other respected market analysts, please explore the DIY Investor Summit.

Medieval Times in the Modern Middle East

By George Friedman and Kamran Bokhari

If geopolitics studies how nations behave, then the nation is singularly important. Nation-states are the defining feature of the modern political era. They give people a collective identity and a pride of place… even when their borders are artificially drawn, as they were in the Middle East.

Constantly in conflict with the notion of nationalism, especially in such a volatile region, are transnational issues. These are issues like religion and ethnicity that cannot be contained by a country’s borders. Arab nation-states are now failing in the Middle East, and though their failure is primarily due to their governments’ inability to create viable political economies, transnational issues—especially the competition between the Sunni and Shiite sects of Islam, as well as the struggle within the Sunni Arab realm—are expediting the process.
The Failure of Pan-Arabism
Transnational issues have long bedeviled the countries of the modern Middle East. Major Arab states like Egypt, Syria, and Iraq began to flirt with pan-Arabism—a secular, left-leaning ideology that sought political unity of the Arab world—not long after they were founded. It threatened entrenched powers, particularly Arab monarchies like Saudi Arabia.
But for an ideal that promoted unity, pan-Arabism was a notably fractured movement, with claims of leadership coming from the Baath party in Syria and Iraq to Gamal Abdel Nasser in Egypt. Whichever form it took, it advocated a kind of nationalism that defied the logic of the nation-state.

Pan-Arab nationalism failed because it couldn’t replace traditional nationalism and because it advocated something that had never existed in history. But the countries that rejected it never really developed into viable political entities. Autocracies and artificial, state-sponsored secularism kept them fragile, held together mostly by the coercion of state security forces.

Since the 1970s, these countries have been challenged by another transnational idea, Islamism (or political Islam), which has proved to be far more effective than pan-Arabism. Whether practiced by the Muslim Brotherhood, by jihadists, or more recently, by Salafists, the movement has spread throughout the Middle East. It has taken root not only among Sunni Arabs but also among Shiites. In fact, the Shiites were the first to create an Islamist government when they toppled the monarchy in the 1979 Iranian Revolution. Sunni Islamists would not hold traditional political power until after the so-called 2011 Arab Spring.
But their power was short-lived: Either the regimes they sought to replace survived the uprisings, as was the case in Egypt, or the uprisings themselves eventually gave way to armed insurrection, as was the case in Syria.

The anarchy of the Arab Spring was fertile ground for jihadists, especially for the Islamic State, which became the most powerful Sunni Islamist force in the region. The group owes its success primarily to its ability to exploit sectarian differences in the region—differences made all the more acute after the United States toppled the regime of Saddam Hussein, a secular government dominated by Sunnis who had been in control of a majority Shiite country. The Baathist regime in Iraq was replaced by a Shiite-dominated government that Sunnis throughout the region had tried to keep from power.

Likewise, the Islamic State, Saudi Arabia, and Turkey scrambled to take ownership of the Sunni rebellion in Syria, which had been led by a minority Shiite government. The Islamic State was the best positioned to exploit the situation, creating a singular battlespace that linked eastern Syria with western Iraq.
In doing so, it has destroyed what we have come to know as the sovereign states of Iraq and Syria. Iraqi and Syrian nationalism can’t really exist if there is no nation. The Islamic State has lost some territory recently, but its losses appear to benefit not the nations to which the land once belonged but the sectarian and ethnic groups that happen to be there. In Syria, Sunni Arab forces are not all that interested in fighting the Islamic State. The only two groups that appear willing are the Syrian Democratic Forces, which are dominated by Kurds who are trying to carve out their own territory, and Syrian government forces, who want to retake the areas that IS seized after the rebellion broke out.
Nationalism Replaced by Sectarianism
Identities based solely on sectarianism now stand in the place of nationalism. On one side are the Sunnis, led nominally by Saudi Arabia. On the other are the Shiites, led nominally by Iran. The Sunni bloc is in disrepair; the Shiite bloc is on the rise. The fact that Iran is Persian has in the past dissuaded Arab Shiites from siding with Tehran, but Saudi efforts to prevent the Shiite revival (not to mention the rise of the Islamic State) have left them feeling vulnerable. They are willing to set aside their differences for sectarian solidarity.
There’s historical precedent for what’s happening in the Middle East. In the 10th century, the Shiite Buyid and Fatimid dynasties came to power because the Sunni Abbasid caliphate, challenged by competing caliphates and upstart Persian and Turkic groups, began to lose its power. Shiite dynasties ultimately could not survive in a majority Sunni environment, especially not after it came back on top from around 1200 to around 1600. The Shiites rebounded in the 16th century in the form of the Safavid Empire in Persia, which officially embraced Shiite Islam as state religion.
Power changes hands, cyclically, about every 500 years.
And now, with Sunni Arab unity on the decline and with jihadists challenging Sunni power, the circumstances are ideal once again for Shiite power to expand. The Shiites are a minority, so it’s unclear just how far their influence can actually spread.
But what is clear is that modern nationalism is being replaced by medieval sectarianism.

Bully-beef Bulls

Investors snap up Argentina’s 100-year bonds

Six defaults in the past 100 years do not deter a bet on 2117
ONE hundred years ago, Argentina was not the country it is today. Thanks to a belle époque of lavish foreign investment, rapid inward migration and bountiful agricultural exports, its GDP per person in 1917 was comparable to that of Germany and France. Although the first world war brutally interrupted international trade and investment, the country profited from filling the bellies of soldiers on the front with tinned corned beef.

No one knows how Argentina may change over the next 100 years. But many investors seem willing to bet on one forecast: that its government will in 2117 repay $2.75bn-worth of dollar-denominated, 100-year bonds, sold to enthusiastic investors on June 19th.

Since Argentina has defaulted six times in the past 100 years, that belief seems brave. But instead of looking backwards, investors are looking from side to side, at the miserable yields on offer elsewhere. Argentina’s “century” bonds yield almost 8%. That is comparable to what investors can now earn on an equally long-dated bond issued in 2015 by Petrobras, Brazil’s state-owned oil company. And it is several percentage points more than the yield on Mexican bonds due in 2110 or Russian paper due in 30 years’ time.

Moreover, many investors will hope to make a profit long before this belief in Argentina’s 22nd-century creditworthiness is tested. If their case merely becomes more plausible (or if yields elsewhere prove disappointing), Argentina’s bond prices are likely to rise, allowing their holders to sell at a profit. And the longer the life of a bond, the more the price will move (in either direction).

For Mauricio Macri, Argentina’s president, the successful bond sale is a timely endorsement of his reform efforts. His team had hoped that MSCI, which compiles stockmarket indices, would decide this week to readmit Argentina into its widely-followed emerging-market index, rescuing it from the lower tier of “frontier markets”. But on Argentina, unlike China, MSCI decided instead to wait.

Investors, it said, are not yet convinced Mr Macri’s reforms are “irreversible”. It is unusual for equity investors to be more circumspect than bond buyers. But they have a point. At times over the past 100 years, Argentina has shown that it can reform itself, reverse itself, and reverse those reversals.