(Corrects title of FCStone analyst to Vice President of Equity Trading, Latin America)
By Dion Rabouin
NEW YORK, July 1 (Reuters) - After long considering Argentina's equities, Manning & Napier Inc portfolio manager Ben Rozin was finally motivated to buy late last year, taking a stake in agriculture company Adecoagro SA.
Rozin is one of several fund managers encouraged by last year's election of market-friendly President Mauricio Macri. But as Manning & Napier has sought to broaden its exposure to Argentina, a one-time market pariah, it has been hindered by a lack of publicly-traded Argentine companies.
Argentina's recent deal with "hold-out" hedge funds - who for years battled former President Cristina Fernandez de Kirchner - has thrown the doors open to buyers of the South American country's debt. Investors scooped up $16.5 billion of its multi-tranche sovereign bonds, and another $4 billion from its provinces and assorted corporations.
Another U.S. dollar bond sale was announced on Thursday.
But equities remain problematic.
"The biggest issue is that there aren't a lot of companies listed," said Rozin, one of several investors who had interest in buying stocks after Macri's election, but have struggled to do so.
Argentina's benchmark Merval index, which has rallied 29 percent this year after a 36-percent rise last year, comprises only 15 stocks. The overwhelming majority are regulated utilities like Pampa Energia or commodity-dependent, like oil company YPF.
"The banks and the utilities present a large amount of the market cap, but for us, due to the regulatory issues and also the inflationary issues that a lot of the banks are dealing with, we just have not had a positive outlook on either the banks or the utilities."
Portfolio managers say the country's capital controls and restrictions had long kept them from investing in Argentine stocks or adding to existing positions.
Macri's reforms have included removing capital controls, relaxing reserve and deposit requirements and cutting the country's holding period on foreign investment - though he has not removed it entirely.
But he has yet to tackle some of the biggest impediments to investment: the government's requirement that investors physically be in Argentina to purchase stocks and that they buy stocks in pesos, which remain difficult to exchange for dollars.
Those have often sent investors in search of other more accessible assets, said Belkis Rodriguez, Vice President of Equity Trading, Latin America at market maker INTL FCStone Financial Inc.
"Because of all the hurdles of settling a trade locally, it's very expensive," Rodriguez said. "And few brokers know the process or even want to deal with that."
Investing in countries like Brazil, Chile and Colombia requires that investors have local registration or work with broker-dealers in the country, Rodriguez added, but it is a dramatically simpler process than in Argentina.
"There's so many things that the government has to do," she said. "We'd like to see progress made on the equities side, but I don't know how long that's going to take."
The government is aware of the issues foreign buyers face, said a source within Argentina's stock market regulator with direct knowledge of efforts to increase investment. But it is more focused on a proposed tax amnesty for residents with undeclared funds.
"For now (the stock ownership issue) is being studied but there is nothing certain," said the source, who asked not to be named due to the sensitivity of the matter.
As a result of the roadblocks, those interested in buying Argentine equities have typically had to buy ADRs, which are essentially surrogate stocks issued by a U.S. bank and traded on a U.S. exchange.
"I wish we had more opportunities, more choices to invest in Argentina," said Luiz Ribeiro, senior equities portfolio manager for Deutsche Bank's Latin America Equity Fund, which owns American depositary receipts (ADRs) in Supervielle . The financial group raised around 3 billion pesos ($201 million) in May in the country's first initial public offering since 2010.
Argentina's stock markets are so opaque that even the Global X MSCI Argentina ETF, which has seen $43 million in inflows this year, roughly doubling its size, does not invest in actual Argentine stocks. It is made up mostly of ADRs, with other stocks that have exposure to Argentina or have operations there.
"If capital controls remain lifted for a while and foreign investors become more comfortable investing in the local securities, what you could see is the need to invest in ADRs becomes lower," said Jay Jacobs, director of research at Global X, which operates the fund.
The Argentina ETF is based on a benchmark set by index compiler MSCI, which has said it will consider reclassifying Argentina to an emerging market next year.
MSCI downgraded Argentina to a frontier market in 2009 because of the government's restrictions on capital flows and other regulations.
"We've identified a lot of the improvements that have been made around capital flow restrictions and around FX market liberalization," said Craig Feldman, executive director index management research at MSCI, adding that the test would be whether the changes were "being experienced on the ground."
Emilio Ilac, chief executive of local investment bank Puente, who managed the recent IPO of sweets-maker Havanna , has worked with dozens of companies that have recently filed IPOs in Argentina's local market. He's confident the equity market is going to strengthen and offer investors more choices soon.
There is still much to be done, Deutsche's Ribeiro said, but he has faith because, "the first adjustments were made in a record time.
"I think the market is just starting to open up," he added. (Additional reporting by Walter Bianchi; Editing by Christian Plumb)