Colombia, South America's third-largest economy behind Brazil
and Argentina, has become a major player on the emerging market
stage in recent years.
The country's economic ascent has landed it a place as the "C"
in the
popular CIVETS acronym
and growing investor awareness of Colombia has helped the Global
X FTSE Colombia 20 ETF (NYSE:
GXG
) nearly triple since its February 2009 debut.
Today, the Global X FTSE Colombia 20 ETF, the largest
Colombia-specific ETF, has more than $197 million in assets under
management. The ETF can lay claim to being one of the
best-performing funds since the March 2009 market bottom.
There is a lot to like about Colombia from an investment
perspective, but despite efforts to change public perception of
the country for the better, many investors still view this South
American economic power as a politically volatile nation renowned
for its cocaine production.
"I think the degree of country risk (in Colombia) is heavily
over-rated by many foreign investors, especially as the
government is very pro foreign investment and a close ally of the
U.S.,"
Caiman Valores, an independent analyst based in
Medellin, Colombia
told Benzinga in an interview.
Close ties to the U.S. are a pivotal part of the Colombian
economic story. In April, the U.S. government finally got around
to approving
a free trade agreement with Colombia, which went
into effect last month
.
Colombia is also moving up the list of oil exporters to the
U.S., jumping to the eighth spot last year,
according to the U.S. Energy Information
Administration
.
Regarding oil, the commodity is playing a pivotal role in
Colombia's economic growth. The returns offered by GXG and the
Global X FTSE Andean 40 ETF (NYSE:
AND
), an ETF that allocates almost 22 percent of its weight to
Colombia indicate as much.
Colombia is one of just five countries in the world that is
currently increasing its oil production. The country aims to pump
1 million barrels per day by the end of this year and is now
South America's third-largest oil producer behind Venezuela and
Brazil. Ecopetrol (NYSE:
EC
), Colombia's state-run oil company, is the largest holding in
GXG and AND, accounting for 15.2 percent and 10 percent of those
funds' weights, respectively.
The large allocations to Ecopetrol have served GXG and AND
well this year. GXG has surged 16.4 percent while AND has climbed
almost 15 percent. Year-to-date, shares of Ecopetrol have soared
37 percent, making it one of the best-performing oil stocks in
the world. On the other hand, Petrobras (NYSE:
PBR
), Brazil's state-run oil company, has slid 17.3 percent, making
it one of the worst-performing major oil stocks.
Even with its bounty of oil and minerals riches, Colombia
still faces a nagging perception problem.
"The problem with Colombia is the historical perception
para-militaries, communist guerillas and narco-traffickers,"
Valores said. "The real Colombia is a lot different to the media
Colombia and investors only ever see what is on the news which is
generally quite sensationalistic."
"The country is also starting from a lower economic baseline
so it is going to experience massive growth while it plays
catch-up now that it has opened itself up to the world
economically. It used to have a very heavily regulated economy
which is now rapidly moving to being a very liberalized market
economy and it is this with its very positive environment for
foreign investment and resources that are driving the
market."
Regarding political risk, Valores said he would give Colombia
a rating of five or six on a scale of one to 10 with 10 being
most risky.
In addition to tolerable political risk, Colombia equities
also sport favorable valuations. GXG's trailing price/earnings
ratio is 19.2, according to Bloomberg data. The 2012 and 2013
estimates fall to 15.3 and 13.1, according to AltaVista Research.
GXG has also has a price/book ratio of 1.6. That compares to 2.74
for the iShares MSCI Emerging Markets Index Fund (NYSE:
EEM
), 3.35 for the iShares MSCI Brazil Index Fund (NYSE:
EWZ
) and 2.95 for the iShares MSCI All Peru Capped Index Fund (NYSE:
EPU
).
Colombia is also home to one of South America's more advanced,
vibrant banking sectors and some analysts have speculated
consolidation among Colombian banks will increase in the near
future. Valores is bullish on Bancolombia (NYSE:
CIB
), Colombia's largest bank. That stock is the second-largest
holding in AND and GXG, accounting for 8.1 percent and 12.3
percent of the funds' weights, respectively. Bancolombia
currently yields 2.5 percent and its payout has quadrupled in the
past eight years.
For more on Colombia ETFs, click
here
.
(c) 2012 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.