The May 6 "flash crash" panicked a lot of U.S. investors, but it
might have also marked the entry of a new country to the
global-growth story: Colombia.
The Global X InterBolsa FTSE Colombia20 exchange-traded fund (
) has rallied 19 percent in the last three months, compared with a
5 percent loss for the S&P 500 and a 1 percent gain for the
broader emerging-market sector over the same period.
There aren't options on GXG yet because it was only introduced in
early 2009 and has thin trading volume. However, there are calls
and puts available on the country's biggest lender, Bancolombia (
), which has outperformed GXG with a 28 percent gain in the last
three months. CIB pulled back last week after moving straight up
last month, and this morning I bought the shares.
While Colombia might sound risky, there are plenty of reasons to
like this country. The first reason is that it has a bad reputation
because of the history of drug trafficking, but that is ancient
history now. I spent 10 days in Medellin and Bogota earlier this
year and saw nothing but growth and progress.
The airport in Medellin is undergoing major expansion and the
country overall has an amazingly good health-care system. They're
not just exporting coffee and oil. Colombia is already a center of
education and intellectual life.
Even more importantly, the economy is underleveraged. The banks are
overcapitalized and the lending standards are extremely tight. At
the same time, the government implemented financial reforms in 2002
to allow the rise of securitization.
Topping it off, they also have a privatized pension system that
needs to buy lots of bonds. When you put all those pieces together,
the groundwork has been laid for a boom in lending and investment
that could last for years--if not decades.
It's also worth noting that the "flash crash" was largely
precipitated by worries about debt and stagnation in Europe.
Colombia, however, is everything that Europe is not. It has little
debt, growing incomes and a young population. (Coincidentally,
Colombia also kicked off the first emerging-market investment boom
in 1822. Long before British capital flowed into U.S. railroads, it
targeted the country named after Christopher Columbus.)
Furthermore, the Colombian peso has been a very strong currency,
forcing the country's central bank to buy dollars to prevent the
appreciation from hurting exports. While I won't pretend to be a
currency expert, there is a huge amount of foreign direct
investment flooding into the country by major multinational
corporations. That means there will be job growth and higher
incomes for years into the future as those investments unfold.
One chart-based reason to support the bull case for Colombia is
that CIB and GXG both hit new all-time highs last week, while
markets in most other countries (with the notable exception of
Singapore) are still trying to break free of their 200-day moving
As I wrote last month, the global-growth story is back. In
2003-2007, it was led by Brazil, Russia, India and China. The new
story could be for investors to look for new names with new growth
opportunities, such as Colombia. We will continue to explore the
growing universe of emerging market names in coming weeks.
I own CIB shares.