What Jumps Out: Where Is Everyone Going?

Well, it feels like Groundhog Day – Friday a.m. and no-one in Medellin or Bogota will be venturing out until 5 a.m. on Monday – COVID curfews are back.  There is some good news on vaccines as the health sector starts to get jabbed – although they have to queue for hours first – but overall complacency has won out and deaths are rising rapidly once again.

________________________________________

Against this backdrop it might appear odd to be quibbling about the lack of overseas investment in Colombia however that is what I am here to do.

Earlier this week we had the equity market flows for March, a month when the index lost 3%, and we find that foreigners, whilst continuing their healthy participation at 34.8% were almost the largest net sellers. Now $30mn is not the end of the world however given the poor performance of Colombia versus its peers over the past 12 months it is just a tad perplexing.

Above (courtesy of our chums at Bloomberg) we find a basic chart, in dollars, of what has happened among the Latam indices since COVID made its way into our lives. Put simply, Colombia has been the worst performer, only marginally versus a couple of cases but versus the rest, it is miles behind.

If we strip out the best performer Chile, which despite forging ahead of the rest of the region in terms of vaccines and also having seen copper prices recover dramatically, is currently fully locked down – there is an argument in most cases that Colombia should be doing at least as well as the rest.

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

Brazil is the closest to Colombia in terms of returns but is currently tracking at 4,000 deaths per day with no light at the end of the tunnel, Colombia’s COVID strategy may not have been Utopian but it is also well ahead of our southern neighbor. Likewise, Mexico where 60% more deaths were suddenly discovered – or Peru where the situation is still very delicate. Those three countries are all in the Top 20 globally in terms of deaths/1000 and in a region where (Chile apart) the vaccine roll-out is sluggish to say the least.

So let’s say Colombia has some issues – fiscally the numbers don’t add up so we need a tax reform, the publication of which has been delayed again by politicking, the ratings agencies have been making veiled threats for the past six months and we have a potentially messy election in just over a year – are we really 22% behind Peru, or 30% worse than Mexico or 37% less attractive than Chile in terms of performance.

This is not just a Colombia problem, Latam has issues as a whole. It has lost weighting versus both Asia and EMEA over recent years – China would be a huge part of that switch – and its general COVID performance has been stand-out in the wrong way. Many argue that with China building out its own economic backyard in Asia, the US will now potentially have to look to Latam as its own backyard, that remains to be seen but in the meantime, there is unquestionably value to be found here in Colombia, especially in dollars.

Fortunately, many of the local stocks have recovered from the high shock that saw global markets collapse in March 2020, but others haven’t and are trading well below those levels. To point out just a few: Grupo Sura (-28%), Grupo Argos (-25%), Ecopetrol (-24%) – the local economy may have a long way to go but there is unquestionably value to be found.

________________________________________

For those who do look closely – change is upon us as the MSCI has now joined forces with the bvc to create the MSCI COLCAP index which will be going live in less than two months on May 28.

The first preliminary index, subject to change of course before it is finalized, has been published, and there will be new names, as well as others disappearing, as Colombia adapts to the MSCI methodology. Grupo Exito will not, as it stands, be part of the index, but Grupo Bolivar will make an appearance, there are also adjustments to other weightings.

This is all part of the internationalization of the Colombian market, the MSCI is clearly a strong partner in this, and it will hopefully draw more attention to a market that has underperformed notably over the past 12 months.

________________________________________

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