Growth: We now know that Q1 GDP stood at 8.2%, well above the 7.4% expected and now we see a recalibration of the FY 2022 number. A month ago, the consensus stood at 4.6% – that number is now 5%, either of which would point to Colombia being the fastest growing economy in Latam. The expectation for Q2 is now at 6.7% – but judging by the local activity, that could be an understatement. All this during a period when the Presidential elections were going to supposedly impact the economy.

Inflation: With such rapid growth and the global geopolitical situation, there are real concerns about how high CPI could go. In May inflation touched 9.23%, a figure not seen for many years – again this has pushed the YE 2022 estimate to 8% – from 7%. The Central Bank’s target range is 2-4%, even by the end of 2023 that may not be attainable. A year end number of 8% would have an impact on the minimum salary negotiations.

Interest Rates: With inflation comes higher interest rates. At 6% they have already grown considerably but the terminal rate is now standing at 8.25% by the end of the year, before falling during Q1,23.

The Peso: The lottery continues with the currency. Year-end expectations have risen once again at $3850 ($3800 last month) but there are so many variables globally it is at best a guesstimate.

Investments: With an election upon us 54.8% of money managers cite Sociopolitical factors as the main variable when considering investments. Monetary policy (22.6%) is next on the list. In terms of what to invest in, most products are stable however there was a drop (-26.7%) in local stocks and a rise in cash to 33.3%. In terms of the COLCAP 74.7% expect a decline over the next three months.

Sectorially, financials (94.1%) are the top pick followed by energy (82.4%), while oil has dropped away to 35.3%. Top Picks within that are Bancolombia (41.2%) & GEB (35.3%).

SMCI: In terms of stock market confidence there was another decline of 6.4% to 71% which is clearly reflected in the COLCAP outlook above.

The full details of both reports (in English) are to be found on the BVC webpage on the following links.

SMCI: https://bvc.co/news/stock-market-confidence-indices-smci-may-2022-cl3izccl52az40albeys1f0sd

BFOS: https://bvc.co/news/financial-opinion-survey-may-2022-cl3iyk1rr29or0bk7bahxnvc0

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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

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

At the foot of this note are the links to the full report – in the meantime an executive summary…if you are not an executive, don’t worry you are also free to peruse.

MACRO

GROWTH: After the Q3 GDP number came in at 13.2% (above all estimates) we find that the YE 2021 number has now risen from 8.75% to 9.0%, with a top estimate of 9.57%. It is worth noting that President Duque last week was publicly predicting 10%. For 2022 the average estimate now stands at 4% – according to most external agencies that would be a region leading number.

INFLATION: With such a snap-back in the economy it is no surprise that CPI is rising (4.58%), albeit slower than expected last month, and that YE estimates are still edging upwards. The latest consensus is 4.89% versus 4.83% a month ago. By YE 2022 that is expected to have fallen away to 3.70%.

INTEREST RATES: We have already seen an end to accommodating rates and a rise to 2.5% at the last Central Bank meeting – this was more radical than most expected. The expectation (69% of analysts) is that rates will rise to 3% by YE 2021. A further year down the road, 4.25% is expected to be the number.

PESO: Clearly interest rates impact on the currency, Turkey and New Zealand being cases in point this week, but recent increases have not protected the Peso from a rampant dollar. With the oil prices fluctuating over recent weeks, there has also been an increase in YE Peso estimates from $3,728 to $3,789. If we reach out to YE 2022 that estimate is at $3,715 – however that is election, oil and global economy dependent.

INVESTMENT

DETERMINANTS: Sociopolitical factors (elections primarily) at 39.29% remain the most important element for decision makers, followed by Monetary Policy (28.57%). There has been a big decline in Economic Conditions (20.51%-7.14%) perhaps owing to it being less of a concern as the economy expands.

PREFERENCES: As per last month, the top preferences are in the debt market. Firstly, Inter Bank Linked Corporate Debt (48.27%) followed by inflation linked Govt Debt (31.03%) and inflation linked Corporate Debt (31.03%).

MSCI COLCAP: Despite the pullback in the index there is a little less confidence in the market. In November 77.4% were looking for an increase over the next quarter, in October that stood at 92.1%. In terms of sectors Holding Companies (93.8%) have replaced Oil (56.3%) as the top pick, this due to the uncertainty over oil prices caused by the recent headlines over releases from international oil reserves. Finally, in terms of stocks the top two are Grupo Argos (Holding) and Nutresa (Food) both with 43.8% – the recent tender offer for Nutresa no doubt a factor here.

STOCK MARKET CONFIDENCE INDEX

The other survey released was SMCI. In contrast with the slightly less bullish COLCAP outlook, there was an increase from 94.75% to 96.15%.

The Buy-on-Dips Confidence Index reached 54.55%, which represents an increase of 1% compared to November.

The Crash Confidence Index reached 54.55%, which represents a drop of 20.5% – this is a concern as it represents the proportion of analysts who attach little likelihood of a collapse if International Markets turn sour.

Finally, the Valuation Confidence Index reached 92.86%, which represents an increase of 1.2% – this is the percentage of analysts who feel the market is not overvalued.

 As promised please find the links below :

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

Stock Market Confidence : 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

Having discussed the reform with most of Colombia—personally I didn’t get the call—the bill of 60 articles is set to be examined in depth. However, it is no longer just 60. Interestingly, having carried out extensive meetings with a mass of different stakeholders around the country, we already have changes. Reportedly 100 new ideas have been added, and four of the original ones have already been axed.

There isn’t much information on the 100 new points, we’ll see them soon enough, but they are likely the usual bargaining chips. As for the four that have been removed, the main one that impacts capital markets is the rejection of the motion to lower capital gains tax for overseas investors on TES trading from 5%-0%. To me, amid the massive social upheaval caused by Tax Reform I, this is no surprise whatsoever. It is a disappointment of course, but it is easy to forget that this tax stood at 30%+ just a few years ago. It would have been the cherry on top to some extent, and it would be a bonus if it reappeared (rule nothing out in Colombia) however given the appetizing TES rates currently on offer it shouldn’t be a deal breaker.

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

Overall, the consensus appears to be that despite the splintered nature of Congress and the fast looming elections, we will get the bill that the country needs. It may not look exactly as it does today and there will certainly be some grandstanding on TV regarding populist aspects, however hopefully this will all be in the rear-view mirror in a few weeks.

We have seen the Fedesarrollo report recently on the improvement in confidence amongst consumers, retailers and industrialists, this despite the very gradual improvements in the COVID situation. Now we have their latest findings for August with regards to the financial sector and the stock market.

• Central Bank: We are seeing analysts slowly edging higher in terms of their outlook for YE 2021 – we now see 37.5% expecting an increase of 50bps to 2.25% & 40% anticipating 2.50%. This is likely a reaction to inflation picking up and the good GDP numbers.
• Growth: In terms of that growth we are now seeing estimates for 2021 ranging between 6.28% & 7.70% – much higher than a few months ago. In April the average was 4.8% – it has now risen to 7.2%.
• Inflation: YE 2021 inflation expectations are now averaging 4.2% – a month ago it was 3.81%, in April it was 2.80%.
• Exchange Rate: Estimating the Peso’s future is tough, the current YE average is $3775 – up from $3700 a month ago, however there are so many factors that could move those numbers.
• Investment Factors: Despite the good GDP numbers, the economy is only the 4th most important factor for money managers – instead fiscal policy is seen as the priority.
• COLCAP: Due to the recent pullback well over 80% of those surveyed are anticipating a rise in the index over the next 3 months. Only 16.2% feel it will decline. Without question the financial sector is the one seen as the most attractive with Bancolombia, Aval and Grupo Sura seen as the top three investments at this juncture.
• Full FOC Report (English) : https://tradersbvc.com.co/categorias/productos?cp=NzE=

Moving to the market and the latest Stock Market Confidence Index and we find a decline from a month ago to 94.59% however this is perhaps a reflection of the recent improvement in stock prices, in July there was more upside.

• The Buy-on-Dips Confidence Index reached 58.62%, which represents an increase of 5.1% compared to the past month.
• The Crash Confidence Index reached 65.52%, which represents an increase of 1.0 % versus July.
• Finally, the Valuation Confidence Index (how many analysts feel the market isn’t over-priced) reached 87.93%, which represents a decrease of 4.4% versus last month and again is a reflection of the uptick over the last two weeks on the stock market.
• 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

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=

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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