Overall there is somewhat of a mixed picture – as opposed to the last few reports where everything pointed towards an economy in serious risk of overheating, there are one or two signals that things are a little more under control.

The main area of concern is inflation with YE22 expectations again rising , this time from 4.6% to 5.1% – well outside the authorities 2-4% band – and with a January reading of 6.94% there are serious concerns that the situation is getting out of control.

As a reaction to this the Central Bank increased rates by 1% to 4% at their most recent meeting, analysts now predict a 6% interest rate at the end of the year but clearly much will depend on the performance of inflation during the year.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

Yesterday we had the 2021 GDP rate published. At 10.8% it was above the 9.3% consensus estimate however after President Duque’s “At least 10.2%” comment on Monday, perhaps no real surprise. This is of course highly encouraging, especially as the world fell apart during 2020 however, as per many countries, the low hanging fruit has now been picked, the harder work is ahead. For 2022 the latest consensus estimate according to the survey is 4.2% which is down from 4.5% in January. Overseas entities have been predicting the latter, which will represent the fastest growth in Latam, but time will tell.

The Peso ($3885 YE22 Consensus) remains a lottery – with an election in three months and the ‘red under the bed’ narrative continuing, as well as a volatile oil price, it is an impossible call.

Switching to the markets, Social/Economic factors (58.3%) is by far the most important determinant as elections draw closer. In terms of investment preferences there is a huge preference for index linked bonds both public and private, after the ramp up in the COLCAP, equities are  for the moment somewhat off the radar.

For those looking at the COLCAP due to the early 2022 surge only 10.7% see an increase of 5%+ over the next quarter, the sectors in play are Oil & Financials (80% each) – in terms of individual stocks heavyweights Ecopetrol and Bancolombia are the top picks.

In terms of Stock Market Confidence it stood at 85.29% (down 1.9% MoM) but that is understandable given the record in the COLCAP over the past couple of months.

Full Reports

Financial Opinion Survey : https://tradersbvc.com.co/categorias/productos?cp=NzE=

SMCI : https://tradersbvc.com.co/categorias/productos?cp=NzI=

Let’s begin with a little background. The economy is booming, even if employment is lagging somewhat, the COLCAP is ripping, up close to 10% YTD despite the external situation and whilst COVID-OMICRON deaths are leaping and there is a lack of vaccines, life is as close to normal as it could be, all things considered.

Nonetheless Consumer Confidence in December dropped to -7% versus -1.6% consensus estimate – this in a month when Colombian’s traditionally leave their troubles behind them and spend like lottery winners; however clearly there are concerns.

We saw a similar pattern with Retail/Industrial confidence. On the Industrial side there was a decline from 15.2% the previous month to 11.6% in December. On the Retail side the situation was slightly better with a small decline from 41.5% to 41.3% – perhaps a reflection of Christmas related sales and there was also an increase in the ‘Economic Situation’ from 68.3% to 74.1%.

Overall, there is ‘tentative’ feel about Colombia at the moment. As people emerge from their homes post COVID they see an economy that is booming but perhaps they aren’t feeling it. Anecdotally, the impact of inflation and a weak Peso can be felt in pricing, from restaurants to construction you feel the pinch as you get your bill or building estimate. When we add in the domestic political uncertainty, wobbling global markets and Geopolitical situations, it is perhaps an understandable lack of confidence.

The FOS for January reflects this well, an economy that continues to heat up, even though officials claim there is no overheating.

Analysts (54.8%) are anticipating a 75bs interest rate increase this week (to 3.75%) and the cause of that is inflation where the YE2022 estimate stands at 4.6% – gapping up from 3.9% in December and supporter of Central Bank member Roberto Steiner who said last week, that the 4% top end of the government range, isn’t going to happen. It is of course highly encouraging to see GDP estimates for 2022 and 2023 rising from 9.55-9.70% and 4.0-4.5% respectively but if employment is lagging then inflation is seen as the collateral damage.

Scrolling down the report (link in English below) the Peso is another area of concern. Despite an oil price that is threatening, despite all of the aforementioned global issues, to move up to $100 in the medium terms – we find the highly oil dependent Peso continuing to struggle. The latest YE2022 estimate is $3850 versus $3750 in December – for anyone importing goods or trying to travel overseas, there is another pinch to be felt.

The Peso unquestionably has a political component ahead of the May elections, we saw the same in 2017-18 as Colombians hedged themselves by moving money overseas, and for that reason we may see a direction change after the June second round. It is perhaps interesting to watch Chile. There was heavy selling ahead of Gabriel Boric’s victory however since then we have seen a revaluation of 8%. There are a lot of moving parts in the Colombian elections however IF a market friendly candidate wins and we get a similar move in the currency that takes us to $3680, and if oil, which isn’t close to priced in, continues to rise then $3500 may not be out of the question. We can add into this FDI, which has been modest over recent months however IF the economy continues to expand post-election and there is a continued interest by PEFs in local start-ups this will another factor to the ‘revaluation’ argument.

Investment Managers continue to reflect political nervousness with 47.5% stating that Sociopolitical concerns is the number component of investment decisions. In terms of the COLCAP, due to the tender offers for Grupo Sura and Nutresa, the recent valuations mean that only 3.7% of those surveyed feel the index will rise over 10%, in December it was 29.6%. Finance is the preferred sector with Bancolombia the top pick with the other COLCAP heavyweight Ecopetrol the next in line.

In terms of the SMCI we see one year confidence in the stock market at 87.18%, a small decline from the 88.78% in December. There were also minor declines in the Buy-On-Dips, Crash Confidence and Valuation Confidence indexes.

As we can see, uncertainty is awash in Colombia despite a quickly expanding economy – we will see what the coming weeks and months bring.

Please find links below:

FOS

https://tradersbvc.com.co/categorias/productos?cp=NzE=

SMCI

https://tradersbvc.com.co/categorias/productos?cp=NzI=

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That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops

The full reports can be viewed here and here, however here is synopsis of the main points to digest:

Growth: Amidst an environment where we see both analysts and overseas agents increasing their growth recommendations for both 2021 & 2022. A month ago the average 2021 estimate stood at 7.2%, which has now risen to 7.8%, with a top end of 8.2%. It is worth noting that this week one local research house (Valores Bancolombia) issued a ‘top end’ of 9.6% which raised a few eyebrows. That said, the data continues to point towards a very healthy rebound.

Inflation: A mixed bag here. We already stand at 4.4% and analysts are expecting a further increase to 4.46% next time around and to 4.74% by year end, up from 4.2%. However, the expectation is that during 2022 this will decline once again to 3.56%, back within the government’s long term 2-4% target.

Interest Rates: The 18 months or so at 1.75% appear to be coming to end and according to 88.9% of analysts that will be at the next meeting when rates will rise to 2%. Furthermore 52.8% are looking for a year end rate of 2.5% and 30.6% are anticipating 2.25%. By the end of 2022 the consensus number is 3.5%.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

Peso: As ever a tough read; the main reason being the ongoing struggle between better oil prices which should cause valuation and outflows related to the loss of investment grade and forthcoming elections. The current estimate for YE21 is 3745 (from the current 8300) with a further move to 3640 by YE22. The anticipation is that both oil prices and production will be higher in 2022 and once the elections are out of the way there will be room for revaluation.

Investment Drivers: At this current juncture investment managers are relatively agnostic in terms of influences. Monetary Policy (25%), Fiscal Policy (19.4%) & Economic Growth (19.4%) are seen as the main drivers. External events (11.1%) are not seen as a key driver.

COLCAP: Whilst there has been tempering of how far the COLCAP will rise over the next three months, 91% believe it will rise versus 83.8% in August. In terms of sectors Finance (71.4%) & Holding Co. (71.4%) are the top picks with a bounce back in oil to 57.1% from 36.4% last month. If we bore down to top stocks the current choices are Ecopetrol (42.9%), PFBColo (33.3%) & Grupo Argos (33%).

Stock Market Confidence Index: As we see above there is a high level of confidence in the COLCAP – in September 96.97% were optimistic versus 94.57% a month ago and 7.2% higher than 12 months ago. There were also increases in both the Crash Confidence (71.43%) & Valuation Confidence (94.44%) indices. There was a drop in the Buy on Dips index to 53.85% which is slightly disconnected from the other readings around the COLCAP.

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops

RATES: By the end of 2020, 50% of analysts foresee an increase of 25bps in rates to 2% whilst 27.8% are expecting no change. In 12 months’ time, the consensus is that the Central Bank will have increased rates to 2.50%.

GROWTH: Expectations continue to grow. For 2020 the consensus is now at 5.5% – up 0.2% MoM. This is still below the Government’s 6% projection, but we are moving in that direction.

INFLATION: The May reading of 3.30% was much higher than expected and it is expected to rise again to 3.60% in June. The YE expectation is now for 3.68%, a large increase from the 3.24% a month ago.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

PESO: The most devilish of all to predict – even for the next month. For the end of 2021 there has been little change – $3600.

MARKETS: Traders are expecting both 2024 & 2028 bond yields to remain solid over the next 3 months. In the case of 2024 77.8% are expecting a yield of 4-5% (4.63% currently) and 86.1% expect the 2028 to trade between 6-7% (6.58%).

INVESTMENTS: Index-Linked Corporate Bonds (47.22%) & those pegged to the Central Bank (41.67%) are the top picks – there has been a jump in local equities from 10% in May to 27.78% in June.

MSCI COLCAP: There is a somewhat cautious tone with the index – close to 85% expect it to rise over the next three months but proportionately more (45.5%) expect a modest increase when compared to last month (35.1%).

PICKS: Financials (85%) and Oil (70%) are the preferred sectors whilst in terms of stocks Ecopetrol (55%), Cementos Argos (40%) & Bancolombia (35%) are the top choices.

Please find below the link to the full FOS report (English):

https://tradersbvc.com.co/categorias/productos?cp=NzE=

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Sticking with the markets the SMCI survey for June reflected an increase in confidence when compared to May.

The overall confidence number stands at 96.97% which is up 5.1% from May – breaking that down we see other improvements.

• The Buy-on-Dips Confidence Index reached 59.26%, which represents an increase of 7.6% compared to the past month and of 15.5% relative to 2020.
• The Crash Confidence Index reached 71.43%, up 5.8% from May and 32.5% versus June 2020.
• Finally, the Valuation Confidence Index reached 90.74%, which was down slightly (0.3%) from May.

Please find below the link to the full SMCI report (English):

https://tradersbvc.com.co/categorias/productos?cp=NzI=

________________________________________

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops