Ex-Economist writer-turned money manager and market commentator Vivian Lewis of Global Investing cited a recent quote from former CNN journalist Frida Ghitis to highlight the investment potential of Colombia:
“Colombia, where I was born, is slowly emerging from a drug-fueled war that lasted decades. The future looks bright. Dodging a regional trend, Colombia’s democratic institutions survived a hyper-popular president who could have held on to power. Its just-completed elections were won by a competent technocrat against a flashier charismatic challenger. President-elect Juan Manuel Santos, who studied economics at Harvard and the London School of Economics (no guarantee of anything) will continue Uribe’s business and security focused policies. Colombians are repatriating their cash. And foreign investment that might have gone next door to Venezuela, spooked by Chavez will head to Colombia. Santos will be good for the economy and investors.”
Per the performance of GXG (above), the ETF based on the FTSE Colombia 20 Index, there have been far worse places to have been invested in the past 10 months. As eager investors continue to rush to the peso (see USD/COP, below) domestic borrowers are getting in on the act. Earlier this week Bancolombia, the country’s largest lender, sold $620 million of subordinated bonds after boosting the size of the offering by $20 million. The 10-year notes pay a spread of 337.5 basis points, per Bloomberg.
As The Economist hinted in late June, there can be renewed optimism about Colombia’s future if for no other reason that commentators are now far more focused on its economy than the once-bustling drug trade (see graph, inset) and the once-thriving contingents of FARC and ELN guerillas terrorizing at will.
However, that isn’t to say that the underlying economy isn’t without its own host of problems:
“At home Mr Santos faces a bankrupt health system, a persistent budget deficit and an unemployment rate of 12%, one of the highest in the region. He promises to balance the budget by 2014 without raising taxes, and to cut unemployment to single digits. He says this can be done by reforming health care and reducing transfers of oil and mining royalties to the provinces. He has been cagey about reforming archaic labour laws that condemn most Colombians to the informal economy.”