Colombia: Taking Stock Of Capital Controls
Modesty is a virtue that Risk Watchdog admires as much as the next investor, but the decision to relax capital controls on equities in Colombia could have come straight out of his own Les Propheties. As predicted, Bogotá has finally seen sense and removed requirements that foreign investors deposit 50% of their stock investments in the central bank for six months or pay a fine. The government is slowly realising that if you want to join the big boys in the investment grade club, you have to keep the ratings agencies happy. A wise move… and one that has unsurprisingly led to a scramble for Colombian stock, pushing the IGBC index up by a tasty 7.5% in just three days.
However, I should explain that this does not mean that things are suddenly all rosy for Colombian assets. Restrictions remain firmly in place on fixed-income assets, and stock market liquidity – even for Latin America – remains tight. What’s more, the odd kidnapping and explosion across the country may keep some would-be investors on edge.
Looking at the big picture, though, I believe that Colombian equities look like a risky, but potentially profitable, medium-term venture. The monetary tightening cycle is over and the central bank may look to cut sooner than most think given the economy’s recent wobbles. Energy giant Ecopetrol has already listed 20% of its stock on the local bourse, and a further capital injection looks on its way. Meanwhile, insatiable demand from an under-stocked and unproductive Venezuelan market should bolster revenue streams for Colombian corporates for some time to come. All things considered, therefore, I reckon this could be one emerging stock market to keep an eye on as the year unfolds.
September 2nd, 2008 at 4:17 pm
I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.
Tim Ramsey