Gone are the days when Brazil was the darling of investors
when it came to investing in Latin America. The nation has
been struggling with some structural issues for more than a year
leaving way for other South American nations to grab investors'
attention. One such country is Colombia.
Of late, Colombia has emerged as an investment hotspot dusting
off all is past stigmas including political instability and
anti-social activities. Its economic growth is also booming as
opposed to stagnant growth in its many other South America
Colombia's commodity-centric economy is getting a thrust from the
revival in many developed markets.. Prudent policy reforms,
decent growth and favorable debt ratios - have all offered
investors a reason to lean on this
biggest economy in Latin America (Read:
Latin America ETFs: Beyond Brazil
Economic Indicators Roundup
Moderating but Still-Resilient Growth Rate:
Colombian economy grew at 5.9% in 2011,
in 2012 and is projected to grow at 3.07%, 4.9% and 4.55% in
2013, 2014 and 2015 respectively (as per the
). The growth rate as we notice eased through 2013 but is
expected to pick up this year.
The economic growth came in at
in Q3 breezing past other South American nations like Brazil,
Mexico, Peru, Chile and Venezuela. Growing household consumption
as well as roaring construction, mining and coffee farming
activities should contribute to Colombia's growth in 2014.
Unlike Brazil, the best part in the Colombian economy is the low
inflation rate which allows policy makers to go for an
accommodative monetary policy to boost growth. The nation has the
lowest interest rate in South America and announced a
$2.7 billion stimulus
package in April 2013, of which about $900 million was spent in
Colombia slashed its benchmark interest rate
in the nine months through March 2013 to 3.25% in the wake of
sagging industrial output and a record-low inflation rate since
the 1950s. Notably, the annual inflation rate remained below the
lower limit of the central bank's 2-4% target range in the last
three months of 2013. This leaves monetary policy room for
Commodity-Focus is a Long-term Driver:
The Colombian economy is a major exporter of commodities from the
energy sector (oil, coal, natural gas) to agricultural sector
(coffee). It has also an upright exposure in the industrial
metal production market. The U.S. and the European Union are the
two largest trading partners of Colombia (read:
3 Country ETFs to Buy on an Oil Surge
Though the global commodity market is presently facing pricing
pressure, the nation will surely benefit from the commodity boom
once the ongoing downturn dies out and consumption in the
developed market takes a full swing. Early estimates are
revealing that Colombia's exports in 2013 are expected to beat
the government goals. Exports will likely record as much as
, the second highest in its history.
Weakening Currency is a Windfall:
The currency declines about 8.3% in 2013, registering its
biggest fall in five years. The Colombian central bank's
program has also played its role in containing the appreciation
of the currency. Further Fed's dialing back of its QE program in
a phased manner should also lead to appreciation of the US dollar
against most currencies. This will surely prove as a boon to the
all-important export industry of Colombia.
Low Debt-to-GDP Ratio:
The country's debt-to-GDP ratio remained low at 32.30%. While
taking about the credit quality, Colombia has got 'Stable' credit
rating from S&P and Fitch while Moody's conferred it a
A Hot FDI Destination:
Given this slow-but-steady scenario, Colombia emerged as a
preferred location for investment as far as Latin American
investing is concerned. Partial-privatization of the state-owned
oil companies - one of the country's key resources - and opening
up of FDI opportunity in oil exploration in large areas of the
country without the requirement of government partnership helped
Colombia garner sizeable foreign money.
The benign investor outlook on Colombia can be validated by the
boom in FDI which more than doubled in the last five years. The
nation has roped in over
in foreign investment in 2012 on the top of $13 billion in 2011.
It is the fourth largest FDI destination in Latin America.
How to Play?
For these above-said reasons, the Colombian market has really
taken off lately and thus could be a good pick for some emerging
market investors who have a high risk tolerance. For those
seeking to tap this emerging economy via basket approach, there
are three options available at this point of time:
Global X FTSE Colombia 20 ETF (
The fund looks to track the performance of 20 most liquid stocks
in the Colombian market through the FTSE Colombia 20T Index.
Currently the fund has invested $110.3 million of assets in 26
holdings. In terms of industry breakdown, financial stocks have
36% weight, followed by energy (23%) and basic materials (15%).
The fund charges 68 basis points annually. The fund lost 15% in
2013. The fund also has company-specific concentration risk. GXG
currently has a Zacks Rank #3 (Hold).
Market Vectors Colombia ETF (
COLX seeks to track the Market Vectors Columbic Index, which
provides exposure to publicly traded companies that are domiciled
and primarily listed in Colombia or derive at least 50% of their
revenues from Colombia. The fund charges 75 basis points in
The ETF currently holds 24 securities and assets about $3.5
million. Here also financial takes up the top spot with about 37%
weight, followed by energy at 21% weight and materials at 16%
weight. The fund shed 14% in 2013. COLX currently has a Zacks
Rank #3 (Hold).
MSCI Colombia Capped ETF (
The fund looks to follow the MSCI All Colombia Capped Index to
capture the performance of the large, mid, and small cap segments
of the broad Colombian market. The fund invests about $19.1
million in assets in 25 holdings. The fund is concentrated in the
top 10 holdings which account for more than half of the total
iShares Launches Colombia ETF (ICOL)
The ETF charges a 61 bps in annual fees. Like the other two, this
fund is heavily exposed to financials and energy followed by the
utilities sector. The most striking part is the fund's return.
The fund debuted in June 2013 and since then the fund returned
Colombia has severe unemployment issues. Though down considerably
from the peak of
to 8.48% at the end of November, jobless rate is still quite
alarming. Further, the economy and the funds discussed above are
extremely susceptible to the performance of somewhat volatile oil
and mining sectors.
Though drugs and security issues are now under control, the
country is still not out of the woods. Also, as we progress
through 2014, the talk about the 'zero taper' and the consequent
emerging market slump will loom large. This might create some
short-term volatility in Colombian funds as edgy investors might
flee the country.
Having warned of the negative sides, we would like to conclude
that investors must not be bogged down by such issues. Of late,
the Colombian finance minister has revised the potential GDP
growth rate upward from 4.5% to 5.0%. And in order to attain the
likely level of growth, the nation will not hesitate to opt for a
rate cut or an easy monetary policy for a prolonged period. So,
risk-tolerant investors can try out this growth story in 2014.
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ROCKWELL COLLIN (COL): Free Stock Analysis
MKT VEC-COLUMB (COLX): ETF Research Reports
GLBL-X/F COL 20 (GXG): ETF Research Reports
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