If Argentina were to rejoin MSCI's emerging market indices, JPMorgan predicted that four companies would be part of the MSCI "Argentina Standard" index: YPF, Grupo Financiero Galicia, Banco Macro and Pampa Energía, while the MSCI Argentina "Small Cap" index would have eleven components.

A potential upgrade of Argentina's emerging market rating by index provider MSCI could trigger an influx of investment into the country's stocks of around $1 billion, JPMorgan said on Tuesday.

MSCI classifies Argentina as a standalone market and not as part of its suite of emerging market indices.

The index provider demoted Argentina in November 2021 amid market access issues and strict capital controls that limited investors' ability to replicate the index.

Argentina's government under current President Javier Milei has been pushing for major reform and has pledged to move to "phase two" of its plan to stabilise the crisis-hit economy, with triple-digit inflation, a deepening recession and capital controls that skew trade but are in place to protect the local currency.

If Argentina were to rejoin MSCI's emerging market indices, JPMorgan predicted that four companies would be part of the MSCI "Argentina Standard" index: YPF, Grupo Financiero Galicia, Banco Macro and Pampa Energía, while the MSCI Argentina "Small Cap" index would have eleven components.

"With an estimated weighting of 0.2% in EM, Argentina would be located between Colombia and Peru in the EM index," said Diego Celedón of JPMorgan.

If a reclassification materializes, JPMorgan estimates that potential inflows could reach nearly $1 billion, including $786 million from the standard index and $176 million from the small-cap index.

Argentine Economy Minister Luis Caputo and central bank chief Santiago Bausili told the country's banks at a meeting last month that capital controls would be lifted, but "without haste," according to one source.

JPMorgan expected restrictions to ease once macroeconomic conditions were stabilizing and foreign exchange reserve ratios improved, adding that it expected to see that begin to materialize in the fourth quarter.

MSCI typically announces any changes to its country classification during its Market Classification Review, which is typically scheduled for June and typically follows an investor consultation process.