This how bad things for exchange traded funds tracking Latin American stocks in 2015: Of the six significant single-country ETFs tracking large-cap stocks in various Latin American nations, just one, the Global X MSCI Argentina ETF (NYSE: ARGT), is up year-to-date.

Of the five losers, the iShares MSCI All Peru Capped ETF (NYSE: EPU) is off 26 percent, but that makes it just the third-worst performer of that quintet. EPU's slide, one hastened by the ongoing erosion in commodities prices, has the country vulnerable to losing its emerging markets status.

Last week, MSCI, the index provider for an array of widely followed global benchmarks, including the MSCI Emerging Markets Index, said it is mulling a demotion of Peru to frontier market status.

“Currently only three securities from the MSCI Peru Equity Universe meet the relevant investability requirements applicable to Emerging Markets. In order to increase the number of potentially eligible securities, MSCI proposes to apply the minimum size requirements of the Smaller Frontier Markets, and a minimum liquidity requirement of 5% Annualized Traded Value Ratio (ATVR) for the MSCI Peru Indexes,” according to a statement issued by MSCI.

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MSCI added that is considering moving Arizona-based Southern Copper Corp. (NYSE: SCCO) from its Peruvian index to a U.S. benchmark. Southern Copper is currently EPU's second-largest holding at a weight of 18.8 percent, according to iShares data.

Although MSCI did not identify the three stocks it views as suitable for ongoing inclusion in its Peru index, it is not unreasonable to assume the names are Credicorp Ltd. (NYSE: BAP), Intergroup Financial Services and perhaps Buenaventura Mines S.A.A. (NYSE: BVN). Those are EPU's largest, third- and fourth-largest holdings, respectively, combining for over 32 percent of the ETF's weight.

MSCI said its decision on Peru's market classification will be announced at the end of September. If Peru is demoted to frontier status, it would be eligible for inclusion in the iShares MSCI Frontier 100 ETF (NYSE: FM). Argentina, FM's second-largest country weight, is the only Latin American nation in FM.

While it is the countries in line for frontier-to-emerging or emerging-to-developed promotions that get most of the attention, market classification demotions are not unheard of. MSCI did just that with Morocco in 2013, removing the North African nation from the MSCI Emerging Markets Index and sending it to frontier status.

Regardless of what happens with Peru, its market status outlook is not nearly as dire as Greece's. Earlier this year, MSCI said it is mulling removing Greece from the MSCI Emerging Markets Index and demoting it to standalone market status, a sort of index purgatory that implies even more risk than frontier status.

Peru accounts for a scant percentage of the iShares MSCI Emerging Markets ETF (NYSE: EEM). The last country on that ETF's roster not listed as “other” is Qatar at a weight of less than 1.1 percent. Other countries combine for 3.2 percent of EEM's weight and Peru is among the “other.”

Image credit: David Stanley, Flickr

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