Stabilization or crisis?: What is the reason for the rise in Colombian assets?

Colombian assets are recovering thanks to the stability of the country’s economy, not because investors are betting that Congress will block social reforms, said Finance Minister Ricardo Bonilla.

(See: So far in June 2023, the dollar has lost more than 260 pesos).

Stocks, bonds and the Colombian peso advanced in recent days after the wiretapping complaints and illegal campaign financing involving the government of President Gustavo Petro. However, the rebound is prior to the scandal, Bonilla said in a telephone interview with Bloomberg.

“The market is supporting us, but not because there is weakness in the GovernmentBonilla said.

Analysts at Barclays Plc., Banco Bilbao Vizcaya Argentaria SA, Wells Fargo & Co. and XP Investments US LLC. indicate that Petro’s political difficulties are positive for Colombia.

(See: Colombia’s external debt represents 55.3% of GDP).

Only in the exchange market, the peso fell more than 260 pesos in the last week and left the dollar at less than 4,200 pesos.

Colombia’s message of economic stability brings calm to financial markets and investors have responded by accepting lower returns in sales of local government bonds, Bonilla said.

The minister also said that the reforms promoted by the Government are not stagnant in any case and advance in Congress with scheduled debates for health and pension bills in the coming days.

(See: Growth of the economy in 2023: this is projected by the Ministry of Finance).

“And fears about the future of the oil sector are unfounded, as companies continue to explore“, he added.

In addition, he recalled that although the Government has not granted new exploration licenses, there have been recent gas discoveries in blocks that have already been awarded.

Alejandro Arreaza, Sebastián Vargas and Badr El Moutawakil, strategists of barclays, upgraded their recommendation on Colombia’s dollar debt to overweight from market weight, and recommend buying Ecopetrol bonds maturing in 2030 as Petro loses political support and economic fundamentals improve.

(See: Colombia’s credit rating remains at Baa2, according to Moody’s).

Brendan McKenna, currency strategist at Wells Fargo, said that if the Petro reforms cannot be implemented, “a lot of political risk is removed from the currency”.

Bloomberg