ANDhe balance of the Colombian markets, with the exception of shares, was outstanding in comparison with the main Latin American countries.
In accordance with a Corficolombiana report Since the end of February and as of June 30, the exchange rate appreciated 15.8%, the 10-year fixed-rate bond in local currency appreciated 321 basis points (bps) and the CDS (Credit Default Swap or a financial derivative that makes it possible to hedge the risk of non-payment of a financial asset) at 5 years fell 63 bps.
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The report says that emerging countries benefited from positive surprises in terms of growth and inflation in developed economies and although uncertainty over an eventual recession in the US and the euro zone remains current, the outlook for global economic growth has been more favorable than anticipated and has stimulated appetite for risky assets.
Brazil, Chile, Colombia, Mexico and Peru led the valuations in the first semester, amid high commodity prices; the differential between local and US interest rates, a partial correction in the trade imbalance of goods and the start of a disinflationary process, which is still far from reaching the target.
Says Corficolombiana that the figures of the Colombian markets contrast with the average of the regional exchange rate that appreciated 5.0%, the 10-year bond rate in local currency appreciated 121 bps and the 5-year country risk premium fell 13 bps.
Indicates that it has already been warned that the exchange rate in Colombia was out of the standard of Latin American countries comparable to mid-2022, taking the end of 2021 as a point of comparison.
Mention that Colombian assets suffered an atypical shock in mid-2022, attributable to fears over the economic management of the new Government, which generated a punishment for Colombia compared to the region much higher than what was observed, as a consequence of the loss of investment grade in 2021.
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Corficolombiana says that the punishment of Colombia peaked between late October and early November 2022when the Government gave confusing signals about some rules of the game.
The report mentions that in terms of exchange rates during the collapse in oil prices, the dollar rose from $1,920 in September 2014 to $3,438 in March 2016, while Colombia’s differential compared to the Latin American average reached its highest level. of $750 at the end of 2015, for a penalty of 29%.
By the shock of the pandemic, the exchange rate was barely penalized 8% and the episode generated by the loss of investment grade meant a penalty of 10% compared to Latin America.
But Fears over the change of government and the increase in global risk aversion pushed the exchange rate from $4,065 at the end of 2021 to an all-time high of $5,104 in November 2022, with a penalty compared to its Latin American peers of 31%, the highest among the episodes analyzed.
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He The report indicates in another of its sections that the decrease in the punishment of Colombia in the last four months responds mainly to local factors, within which are the positive adjustment of the external deficit, the wide spread (difference) of the monetary policy rate in Colombia with respect to that of the US and “the deterioration in governability, understood as the ability of the Executive branch to obtain the approval of the proposed reforms and execute its government plan”.
About the exchange rate, uncertainty about the evolution of inflation and the possibility of a recession in the developed world remain highwhich could lead to additional volatility on Latin American currencies during the second semester.
Corficolombiana estimates that the exchange rate would fluctuate between $4,029 and $3,790 in the remainder of the year.
As far as fixed income assets are concerned, there is more limited room to see further appreciation in the second part of the year.
ANDThe degree of correction in the gap would be associated with the possibility that the reforms will be moderated by their passage through Congress and even the result of the regional elections in October.
The Corficolombiana report estimates that Colombia’s 10-year bond could fluctuate in a range between 9.8% and 10.2% while the 5-year CDS could be between 220 and 231 bps.
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