This week we have had two new surveys from Fedesarrollo, the Financial Opinion Survey and the latest Retail/Industrial Confidence data. When taken in conjunction with the big decline in Consumer Confidence which was reported a fortnight ago, there are reasons for concern.
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:
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,