Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • AI Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    • Postcards
Login Archives Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • AI Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    • Postcards
    ×
  • Subscribe
Enter stock ticker or keyword
×
Join 100,000+ Like-Minded Investors Today
Twitter
Tags: Martin Hutchinson

Colombia: Latin America's Hidden Gem for Investors

By , Money Morning • August 29, 2008

View Comments

Start the conversation

Leave a Reply Click here to cancel reply.

You must be logged in to post a comment.

By Martin Hutchinson
Contributing Editor

I have to admit it: When it comes to investing in such emerging markets as Latin America, I’m generally a cynic.

It’s partly because of my experiences as a young banker there in 1979-82. But I’m just as troubled by the mad optimism that goes around Wall Street every time some even remotely plausible government comes to power and takes over somewhere in that region.

One such example: Argentina in 1991-95. I find myself saying: “Guys, you know the place has defaulted every 10 years since the 1930s, so what makes you think it will be different this time around? Make them prove it!”

In Argentina’s case, just as I expected, the new regime didn’t “prove it,” and defaulted again in 2001.

There’s a message there: Don’t get seduced by the “recovery” of the last few years. Much of Latin America always does well in commodities booms, but then it spends more than it earns, maxes out its credit cards, and then looks round for more foreign investors to loot.

Even Mexico has had governments that have looked responsible, democratic and committed to the free market since at least 1994. Yet, the country’s labor productivity increased by only 0.3% annually from 1994 to 2007.

Meanwhile, Petróleos Mexicanos (PEMEX) is watching its oil output decline more and more rapidly, as the government fails to take any real steps to privatize it and bring in badly needed foreign expertise.

Add in the false recovery of Argentina, the total disasters of Venezuela, Bolivia and Ecuador, and the sad, gradual backsliding in Chile, and you can see why many investors shun the entire continent in favor of looking somewhere else.

There are two exceptions:

  • Brazil, which in 2002 looked pretty well indistinguishable from its hopeless neighbors, yet since then, under socialist Prime Minister Luis Inacio Lula da Silva, has put up a record of decent growth, reduced foreign debt and established an effective monetary policy that has controlled inflation. It could still go horribly wrong, but Brazil is currently a place where sensible people should put some money, with some good opportunities.
  • And Colombia, which had to navigate a very tough decade during the 1990s, with narco-terrorism running rampant. But since the arrival of Alvaro Uribe as president in 2002, it has done much better. Even over the longer term, Colombia’s productivity growth rate since 1980 was greater than 1.0% annually, compared with a pathetic minus 0.3% in Mexico, and an even worse negative 0.7% in the spectacularly badly run Venezuela. Even Brazil, with its upbeat story, averaged only 0.2%. We’re not talking East Asian growth rates here, but Colombia’s long-term record is the best in Latin America.

Short-term, the picture is even brighter. Colombian “real” gross domestic product (GDP) growth was 7.0% in 2007, or about 5.6% per capita. In 2008 and 2009, The Economist expects growth of about 4.0% to 5.0% in each year, but that’s still enough for a smart improvement in living standards.

Inflation is currently running at 6.7%, perfectly acceptable in a global commodity price boom, while short-term interest rates are almost 10.0%, well above the inflation rate, showing that Colombian monetary policy is sufficiently tight to bring inflation down – rather than pushing it along, as most other countries are currently doing.

Its payments balance is minus 2.5% of GDP and its budget deficit is 1.0% of GDP, both perfectly acceptable figures. Finally, Colombia ranked 68th on Transparency International’s 2007 Corruption Perceptions Index – not wonderful, but above all four of the so-called “BRIC” economies (Brazil, Russia, India and China).

In terms of products, Colombia’s principal exports are oil, coffee, apparel, flowers and minerals. Its oil exports are double its imports and – unlike its neighbor, Venezuela – it is welcoming foreign oil companies, which are investing heavily and are now finding more reserves than are being depleted annually. Colombia is friendly to the United States, also. Indeed, the United States is its largest trading partner, and the two countries currently have Free Trade Agreement pending Congressional approval.

The bottom line is this: While Colombia’s growth rate is only moderate, it has under President Uribe been the best-run country in Latin America, and has benefited economically from this. Uribe’s second presidential term expires in 2010, but he remains popular, and the betting is that he will pass the baton to a like-minded successor.

The bad news for investors is that not many Colombian companies are quoted in New York, and the market represents too small a part of the global total to have an exchange-traded fund (ETF) all to itself. The IGBC General Index of Colombian shares is down 20% from its 2006 high, but is up 350% over the last five years. The SPDR S&P Emerging Latin America ETF  (GML) invests in Colombia, but that country represents only around 10% of the fund’s overall holdings, and it also has holdings in other far less attractive countries.

The only Colombian company with a full American Depository Receipt (ADR) listing is Bancolombia SA (ADR: CIB), the country’s largest bank-holding company. The stock is attractively priced, with a forward Price/Earnings (P/E) ratio of around 9.0 and a dividend yield of 3.7%.

Other Colombian companies whose shares trade as “Pink Sheet” stocks include Corporacion Financiera Colombiana SA (Pink Sheets: CRPFY), a bank stock that seems to be a reasonable value with a P/E of 11 and a dividend yield of 8.0%. Then there’s also Interconexion Electrica SP (Pink Sheets: IESFY:PK), an electric utility that seems a bit expensive at 30 times earnings. However, Interconexion is expected to undergo a privatization sale by the government in 2009, which may make it both more liquid and a better value.

Both Financiera and Interconexion trade infrequently in the United States, but they are fairly liquid if you can get your broker to buy the shares on the Bogota Stock Exchange.

More one to watch than one to pile into immediately, but a modest investment in CIB (Bancolombia) would seem a good safe bet.

News and Related Story Links:

  • Money Morning News Analysis:
    Venezuela Says “Adios” to Most Foreign Investment, Making it a Stay-Away Play for Investors.

  • Wikipedia:
    Luiz Inácio Lula da Silva.

  • Money Morning Investment Analysis:
    Is Brazil “Investment Grade” for Investor’s Money, Too?

  • Wikipedia:
    Alvaro Uribe.

  • Money Morning News Analysis:
    When Corruption is Low, Your Profits are High
    .

  • Money Morning Special Report:
    Special Report: Hit the BRICs for a Global-Investing Double Play (Part I: Brazil and Russia).

  • Money Morning Special Report:
    Special Report: Hit the BRICs for a Global-Investing Double Play (Part II: India and China).

  • Wikipedia:
    American Depository Receipt.

  • Money Morning Personal Finance:
    Pink Sheets Investing: A How-to Guide to Profit.

  • Global-Reports.com:
    Bogota Stock Exchange Listings. 

 

Here Are 10 “One-Click” Ways to Earn 10% or Better on Your Money Every Quarter

Appreciation is great, but it’s possible to get even more out of the shares you own. A lot more: you can easily beat inflation and collect regular income to spare. There are no complicated trades to put on, no high-level options clearances necessary. In fact, you can do this with a couple of mouse clicks – passive income redefined. Click here for the report…

Claim My Free Report

Subscribe
Login
Notify of
guest

guest

9 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Gonzalo De Romana
Gonzalo De Romana
15 years ago

Based on almost every criteria you've mentioned, I'm surprised you've implicitly left Peru in the bag of the "rest of Latin American countries" when it's performance over the last 5 years has been and continues to be, by far, the best in Latin America and largely superior to Colombia 's. Current estimates, revised last week, are that it will continue to grow it's GDP at a +7% clip during 2008-09 even in the current dismal global economic climate. Only significant issue is it's market size (not much different from Colombia's) and liquidity which means it's not an option for especulative investments. Suggest you do some additional research.

0
Reply
StickClose
Jeffrey White
Jeffrey White
15 years ago

After living in Brazil during the 1990's and spending 4-6 weeks there each year, I would say that their economic rise is mainly due to the fact that the country has tremendous natural resources that the world needs. Grains, crops, metals (iron, copper, gold), alcohol from sugarcane, petroleum (yes, Brazil is now an exporter of oil and the future may even include them in OPEC).

The positive governmental policy over the past 6 years has helped, privatization of many industries. If the government now just stays out of the way there's a green light for huge progress. With the shift in the global financial position and need for resources will cause Brazil to become a financial powerhouse.

BTW… Luis Inacio Lula da Silva (a.k.a. Lula) is the "President". Brazil has a congress and senate like we do in the U.S.A. They are not a parliamentary government, therefore not "Prime Minister".

0
Reply
StickClose
trackback
Don’t cry for me Latin America
15 years ago

[…] Colombia: Latin America's Hidden Gem for Investors By Martin Hutchinson Contributing Editor […]

0
Reply
StickClose
Brazil Investor
Brazil Investor
15 years ago

I like this article- and would love to hear more about it on my blog:

0
Reply
StickClose
Bob Norikane
Bob Norikane
15 years ago

Colombia has very attractive Production Sharing Agreements(PSA) for energy companies. Two spectacular successes are Canadian drillers Gran Tierra(GTE.to/GTE(amex)) and Petrominerales(PMG.to/PMGLF.pk). They still have major upside due to development drilling and exploration of major acreage positions. PMG is a subsidiary of Petrobank and has rights to over 1 million acres of exploratory land. Petrobank has an experimental process to extract tarsands and heavy oil, which are plentiful in Colombia.

0
Reply
StickClose
trackback
Sunshine Kills Vampires » A South American Gem ??????
15 years ago

[…] Colombia: Latin America’s Hidden Gem for Investors […]

0
Reply
StickClose
Apartments Medellin
Apartments Medellin
14 years ago

Interesting article. Is there going to be a follow up now that everything is doom and gloom in 2009?

0
Reply
StickClose
Map of Medellin
Map of Medellin
13 years ago

Well, it's not all doom and gloom in Medellin.

0
Reply
StickClose
Tours Medellin
Tours Medellin
13 years ago

Real estate investors visiting Medellin might want to take a private tour of the city – as after all – long-term yields will depend on more than just the view from an apartment balcony. Tours can be customized to suit the needs of each individual clients.

0
Reply
StickClose


Latest News

September 14, 2023 • By Tom Gentile

Tulips Are the Secret to Trading the Next 300% Rally in AI

September 14, 2023 • By Chris Johnson

Tulips Are Telling Me How To Trade the Next 300% rally in AI

September 14, 2023 • By Garrett Baldwin

This Is My Biggest Economic Fear
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Penny Hawk Midday Momentum
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Quantum Data Profits Flashpoint Trader Darknet Alpha Accelerators Brutus Alerts Resource Traders Alliance L.A.U.N.C.H. Investor Rob Roy Trader Long-Term Equity Profits

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz