What Jumps Out: Green Shoots?

A few years ago, whilst sitting at the trading desk bantering away, back in the days when that sort of thing happened, I finally got tired of watching the monsoon-like rains falling outside the window and yet hearing comments about rainy old London. Being the Uber Millennial I am not, I hopped onto Google and found that sunny old Medellin is indeed the city of the eternal spring and receives fully six times the rain that London does.

Currently that rain is still crashing down on the roof, there has been some sun in the meantime, and again the specter of La Niña is looming over the country – in Colombia that means enough rain to surf down the highway, further south it means the opposite. It is somewhat remarkable that it is only now being discussed given that the rain has been falling for weeks.

In Colombia it matters for a number of reasons. First and foremost, the death and destruction that comes with – roads are blocked or washed away and worse still, houses disappear under tons of earth, or down the mountainside. Economically the impact is felt as roads are blocked, delaying deliveries and in the worst cases meaning crops rot in the fields – the 4G program is fortunately surging ahead but is still a few years from completion, which will hopefully help with some of the problem, so for the time being fingers will be crossed for a short La Niña with minimum impact on both society and food inflation.

On a more optimistic note, the MSCI COLCAP finally appears to be gaining a foothold in 2021, we are no longer bottom of the pile and for foreigners in particular, there are bargains to be had.

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

Over the past month of trading the COLCAP has risen 5% (all numbers are USD) – ahead of all its LatAm peers – Chile and Mexico are effectively unchanged whilst Brazil (-8%) and Peru (-16%) are lost in COVID and political issues respectively.

YTD we may be down 18% still but Peru is now -33% however for those looking for value we are still a distance behind Mexico (+13%), Brazil (-6%) & Chile -8%).

There are multiple reasons for the recent improvement in volumes and performance. Colombia’s GDP in 2021 was expected to be ~top 3 in LatAm, it may still be that however estimates of 7% are now emerging which may yet move it higher. In 2022 it was already expected to be top 2 – again if the momentum remains, various surveys show Colombia as one of the countries recovering fastest from the lockdowns, that may yet be an even better result.

For those locally, stock prices remain low, and they can capitalize, however for those watching from overseas looking at $3872 Peso there is a lot more upside to be found and if they buy, they will help local investors. Here are just three factors which are sure to help the Peso over the coming months:

1. The tax reform being passed in Q3 (next 6 weeks) – this has sapped confidence and whilst immediate action from the ratings agencies won’t occur, their positive comments can help sentiment.
2. The oil price – it has fallen recently, and output has also not been at optimum levels – both can help.
3. The political situation. As per pre 2018 elections, money is starting to be moved overseas in case of an apocalyptic outcome – that would Petro to many, however even if he did win, I foresee a more centrist winner, the institutions are strong, and he would also lack a mandate in Congress to make radical changes. This of course is the most unclear factor but one where a lot of upside could be generated.

All this is coming against a background of a vaccine roll-out that is improving local confidence – as per other nations there is some reluctance being detected (don’t get me started) but it doesn’t appear to be a significant number and we are already seeing teenagers of 15+ being called.

Chin Up Everybody!

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

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