The Medellin Travel Blog: Where to Stay and What to Do» Finance

Making a Mint in Medellin

Andrew Campion — Wed, 10 Nov 2010 21:45:10 +0000

Shares of the top bank in the world’s hottest emerging market should keep marching higher.

It’s not really a surprise that emerging market stocks are kicking sand in the face of the developed world’s equities. With China and India doing the heavy lifting, the engines of growth are just stronger there.

Plus, emerging markets are less susceptible than developed markets to debt crises; they don’t have big enough budgets to get into that kind of trouble.

Fourteen of the 22 countries in the MSCI Emerging Markets Index have registered double-digit gains for the year, led by Colombia (57.9%#, Peru #49.2%#, and Thailand #45.2%).

The BRIC countries (Brazil, Russia, India, and China) are the largest of the emerging markets, and they have shown widely varying results. India has booked a robust 18.8% gain for the year to date, with China and Russia each up 5.6%. Brazil trails the group with a 2.4% gain.

What conclusions do I draw from all these numbers? Well, only the usual things I’ve been saying for years. First, the emerging markets are stronger than the developed markets right now. That’s not a surprise. It will also be no surprise when markets correct and emerging markets fall farther than developed markets. There is no gain without risk, and the higher the potential gain, the higher the risk.

Colombia [has been] the leading emerging market of the past year. Colombia is enjoying the benefits of kicking out the drug lords and getting back to the business of economic growth.

One of the companies that’s enjoying the experience is Bancolombia (NYSE: CIB), the largest bank in the country. This is no flash-in-the-pan company. Earnings growth has been steady, with gains of 39%, 45%, 31%, and 24% in the last four quarters, and the company’s after-tax profit margin reached 20.8% in the third quarter. [The latest numbers are 19.5% for India, -4.9% for China, 14.3% for Russia and 4.5% for Brazil.—Editor]

The chart for CIB shows a stock that rose strongly in 2009, then put in a five-month base that lasted through May 2010. When the blastoff came in June, the stock raced from $44 on June 1st to $62 in late July. Two bases—three weeks at $64 in September and five weeks at $66 starting on September 28th—have set the stock up for further advances. (It closed just above $66 Tuesday—Editor.)

CIB isn’t going to be a rocket shot. The company pays a 2% dividend and works better as a long-term holding than a trading vehicle. But CIB is a great base holding to underpin the higher-volatility picks in your portfolio while providing a little income.

via Making a Mint in Medellin – MoneyShow.com.

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Is Colombia a new emerging leader?

Is Colombia a new emerging leader?

Andrew Campion — Tue, 03 Aug 2010 23:53:30 +0000

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 ( GXG ) 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 ( CIB ), 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 averages.

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.

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From Medellin, Hopeful Signs For A Colombia Free-Trade Pact

Andrew Campion — Wed, 15 Apr 2009 17:17:37 +0000

Colombia asserted itself on the international stage last week, with the 50th annual governors’ meeting of the Inter-American Development Bank in Medellin. Some 6,000 bankers and businesspeople came.

All spruced up for the meeting, Medellin did its best to reclaim its identity as a great industrial center in the Americas, erasing the terrible image it once had as center of the global drug trade.

Looking at the graceful, Hong Kong-like skyline amid flowers and greenery, it’s hard to believe Medellin ever had such a past.

Corporate titans from Brazil, Spain, Japan, China and Germany were present along with the bankers, having invested $8.5 billion in Colombia in 2008. A few U.S. executives were present too, but the Americans seemed overshadowed by the others.

It isn’t surprising, because Colombia is rapidly moving to diversify its trading partners, signing deals with China, Japan, Korea, the European Union, Canada and Central America, following Chile’s model of signing free-trade deals with all comers.

The U.S., with its Colombia free-trade agreement still on ice in Congress, was the only country that looked isolated and out of tune with the world without its pact.

It’s frustrating. But there were four signs that word is filtering back to Washington that the U.S. is getting left behind. This may mean the Obama administration is looking for a way to pass the pact and bring the U.S. back into the global mainstream.

• First, former President Clinton made an impassioned defense of Colombia last Saturday against what could only have been its anti-free-trade critics at a “conversation” event with IADB President Luis Moreno.

“I just thought you were getting a raw deal,” the former president said. “You have been through one tough situation after another and you keep looking better to me, so I would just urge you not to give up.”

What else could he have been talking about but the Colombia free-trade treaty?

“None of the people who have watched this country over the last 20 years can doubt that a heroic struggle has been made, not only to reclaim the land for law abiding people but to do it in a way that gives a more law abiding, open and free society. Are you perfect? No. So whoever’s perfect should feel free to cast stones at you. Whoever’s not should ask, ‘If I had to live with what they have, could I have done as well?’ I think you ought to be proud of this country. I am,” Clinton concluded, bringing the audience to its feet.

It looked like a rebuke to Colombia’s congressional critics. Clinton’s statement was delicately finessed to avoid controversy.

But it suggested support for the pact and may translate to influence with those in the Obama administration. It’s hard to assess what influence Clinton has with them, even with his wife, Secretary of State Hillary Clinton, who isn’t afraid to disagree with him.

But it’s worth noting that the secretary was in Mexico that same week, talking to the Mexican government. She’s capable of the same for Colombia.

• Second, Colombia’s trade minister, Luis Guillermo Plata, told reporters he had received calls from U.S. Trade Representative Ron Kirk, stating an interest in working with him on matters of mutual interest to the countries. He didn’t disclose specifics, but what else could they be but trade?

The fact Kirk even called him is encouraging. What’s more, there are signs that Plata has become an important figure in Colombian President Uribe’s administration this year, based on his successes with other trade treaties. Uribe praised Plata and kept him at his side throughout the conference.

• Third, Treasury Secretary Timothy Geithner came to the conference and broadly emphasized the importance of trade:

“We need to reaffirm our commitment to maintain open policies toward international trade and investment and to avoid protectionist measures that could threaten recovery. This will be a challenge for all of us, given the severity of the pressures we each face domestically.”

He was describing a dynamic most clearly seen not in other countries attending, but in the U.S. At a minimum, this doesn’t sound as though Geithner opposes the pact. Geithner’s closeness to Obama, and his presence at the conference, add reasons for hope.

U.S. officials have said that the treaty will have to be rewritten to please Big Labor and protectionist Democrats in Congress before it can come to a congressional vote, and that isn’t encouraging. They’ve done this before, extracting new concessions like hostage-takers looking for a second ransom, only to come up with new demands.

• Fourth, and finally, Uribe’s response to rewriting the treaty suggested he was closing no doors. I asked Uribe whether he’d be willing to accept new terms from Congress.

“We have worked as hard as we can with the U.S.” he told me. “In the case of the U.S., we work to do our best but need patience. Patience, and importantly, prudence.”

True, Clinton may be politically powerless. Geithner may have been offering excuses. And Plata may have been saying less than he seemed. But Uribe could have easily signaled a deal was a deal and closed the door to more nonsense from Democrats, who have negotiated this deal nearly to death.

He didn’t.

That seemed to be the clearest signal yet that something important may be going on behind the scenes that could surprise us.

As the past year’s news from Colombia has shown, there are often big surprises from this country.

• Monica Showalter, an IBD reporter and researcher, filed this report out of the Inter-American Development Bank meeting held in Medellin, Colombia, last week.

Originally Posted @ Investors.com

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Colombia to Delay 3 Trillion Pesos in 2009 Budget

Andrew Campion — Wed, 24 Dec 2008 20:51:54 +0000

Colombia will “delay” 3 trillion pesos ($1.4 billion) in spending from the 2009 budget in a bid to bolster investor confidence amid a global economic crisis.

The spending delay, representing 2.2 percent of the 140.5 trillion-peso budget, may be temporary, the president’s office cited Finance Minister Oscar Ivan Zuluaga as saying in an e- mailed statement. The measure won’t affect spending on social programs, security or infrastructure.

Latin America’s fourth-biggest economy has slowed more than expected this year as 16 central bank interest rate increases in 2 1/2 years made loans to businesses and consumers more costly. The global credit crunch has also led Colombians to scale back purchases of big ticket items like washing machines and cars.

“It’s a drop in the ocean but a good sign to the market the government is being prudent,” said Rupert Stebbings, head of international sales at Interbolsa SA in Medellin. “The most important thing is that infrastructure is untouched because above all else this country needs roads, ports and other such projects.”

The government’s plan will effectively reduce the budget to 137.5 trillion pesos with the delay of 1.5 trillion pesos in investment spending and another 1.5 trillion pesos in unspecified spending, the statement said.

“The measure seeks to preserve confidence in the economy and strengthen investor confidence,” the statement said.

Zuluaga said the government will reevaluate the delay in light of how much it collects in taxes next year and the strength of the economy in the coming months.

President Alvaro Uribe, serving a second four-year term, is seeking to contain the government’s budget deficit while increasing social spending and access to health care for the poorest Colombians.

He has criticized the central bank for curbing growth by maintaining high interest rates for too long in a bid to stem inflation, which peaked in October at 7.9 percent.

Zuluaga said the government decided on the plan after seeing a “lower dynamic” in the economy following the release yesterday of third-quarter economic data.

The country’s gross domestic product expanded 3.1 percent in the July-through-September period from a year earlier as retail sales and industrial output fell. Colombia’s GDP expanded 6.2 percent in the third quarter of 2007 from the year earlier period.

The government yesterday lowered its forecast for economic growth this year to 3.5 percent from 4 percent and cut next year’s forecast to 3 percent from 3.5 percent.

By Helen Murphy – Bloomberg

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