Thursday, 8 January 2009

Colombian Stocks, Time to Buy?

In recent days we have seen a mild recovery in stocks indexes across the region. The Colombian stock index IGBC (see graph on the left, taken from the BVC's Web site) has posted a 7 percent rise since the start of December. Some may believe that the worst is past, while others may see this moment as an opportunity to rotate portfolios and sell. It may be too early.

The IGBC has a good correlation with the Dow Jones, which has been lagging behind the Colombian index (presumably due to the sluggish corporate earnings reports and the very disappointing economic numbers in the U.S.) But in previous crises, the IGBC feel even further before establishing itself at a buy point. According to a couple of local strategists I talked to this week, there would be one specific moment when investors have a good opportunity to divest part of their holdings of Colombian stocks. That is the Obama inauguration (next week, exactly on Jan. 20.)

One thing that we might have to observe carefully in Colombia is the performance of earnings. Financial companies seem to be doing just fine, but exporters and Ecopetrol (the state-controlled oil company) might suffer the consequences of the global recession and the sharp decline in commodities. Until after having some news on that, better to wait. On the other hand, we should expect the central bank to be mulling another round of interest-rate reductions (at least 200 basis points before the end of the first half is my bet. What is yours?) But one thing is for sure -- we won't see the same price levels we saw in April, May 2008 again, at least for a few years.

I wanted to take the opportunity to recommend you, dear reader, checking on this very nice, organised and insightful blog about the Colombian financial markets: El Blog de Finanzas y Dinero . It's written in Spanish language (which shouldn't be a problem for most of you) and has a series of polls that are quite useful for those who follow the markets every day and are tired of the typical Reuters/Bloomberg surveys. I don't know how is the writer of this blog, but anyways, go ahead and check it.

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