Goldman Sachs, Citi, and BlackRock Are All Betting on Colombia Bonds
Major New YorkĀ investorsĀ believe Colombia’s economy is poised for aĀ rebound once oil prices recover, withĀ Goldman Sachs, Citigroup, BlackRock Inc, and Franklin TempletonĀ leading the charge, according to a report from Bloomberg.
They see a country that is doing everything right in terms of making fiscal adjustments and maintaining sound monetary policy. So as the price of oil creeps back up fromĀ its recent staggering lows ā as Brent crude did in August, rising 11% ā Colombian assets are set to rise along with the tide.
Photo:Ā Goldman Sachs Tower in Jersey City, New Jersey (Credit:Ā Paulm27)
Goldman nowĀ ranks Colombia first in the world in terms of nations poised for a surge if oil prices continue theirĀ rally. BlackRock has it in the top three. Franklin Templeton “plowed $1.6 billion USD into Colombian debt through the second quarter,” reported Bloomberg, making the company the largest foreign holder of the bonds. Citigroup told investors recently that it isĀ expecting more inflows into the market for ColombianĀ bonds.
Those betting on Colombia may soon haveĀ plenty of followers looking for emerging market returns. Colombia’sĀ local-currency bonds broughtĀ 5.8% returns in August,Ā the highest ofĀ 31 emerging markets tracked by Bloomberg. In line with these results, the local peso strengthened by 3.3%, making itĀ “the best-performing major currency in the developing world,” per Bloomberg.
āIf oil prices stay in the $45-$50 range that our commodity team expects, Colombia could be the next place that outperforms,ā Kamakshya Trivedi, chief emerging-market macro strategist at Goldman Sachs, told Bloomberg. āThatās one place where I see much more appreciation relative to forward markets.ā
If the predictions hold and others jump back into Colombian bonds, this will be a throwback to a recent past that now feels like distant history.
Colombia had beenĀ the rising star of the region just a few years ago, showing major GDP growth at a time when Argentina and Venezuela were falling off a cliff, Brazil was beginning to show signs of weakness, and Mexico was having trouble expanding its economy. But since nearly two-thirds of the Andean nation’s exports come from fossil fuels, the plummet in commodities prices in late 2014 put Colombia into an age of austerity.
It has stayed afloat. Expectations for 2016 growth range from around 2%ā3% in a time when only Peru, among the region’s larger economies, has been able to beat that rate. Budget cuts have been necessary to curb public spending. But the fiscal squeeze and deficit ratio has led Fitch Ratings to put the nation’s ratings on negative watch. ThatĀ fallout soon spread with negative actions against state-controlled oil giantĀ Ecopetrol, the nation’s largest bank inĀ Bancolombia, several other big financial services companies, and the cities ofĀ BogotĆ” andĀ MedellĆn.
Inflation has also raced out of control, hitting a 16-year high of 8.97% in July. This has widely been attributed to a food price spike cause by an El NiƱo-induced drought and a 45-day truckers strike that shut down major transportation routes. And it has eased, dropping to 8.1% last month. But the past six months have featured little in the way of good news.
Finance Minster Mauricio CƔrdenas and President Juan Manuel Santos have been confident throughout the year, continually saying that the current challenges are short term hurdles. They believe that the headwinds will ease, and Colombia, especially now that peace has been reached with the Revolutionary Armed Forces of Colombia (FARC), will be back on its prior upward trajectory once oil prices cooperate.
Others are starting to agree, it seems. AĀ few Wall Street big shots, as well as one of the world’s biggest reinsurers, are now seeingĀ things the same way.