The rally in Colombian stocks that had led the benchmark index to a new record high on Thursday may slow down in early 2010, analysts and traders said.
The IGBC index ended Thursday at 11,558.72 points, its highest close ever. The previous record was hit on Nov. 23, 2007. The index has gained 53% so far this year, though the return is lower than that from the stock markets in Brazil, Peru and Argentina.
There are several reasons to explain the current enthusiasm for Colombian stocks. Current low interest rates in Colombia make the stock market an attractive option for investors such as pension funds that are awash with cash, analysts said.
Additionally, people tend to buy stocks at the end of the year as the government grants tax breaks on assets parked in stocks.
The enthusiasm might be exaggerated, though.
“I’m bullish with caution,” said Andres Jimenez, a Medellin-based market analyst with local brokerage Interbolsa.
A lot of share prices are already overpriced, he said. Also, even though it is widely expected that the country’s economy will recover in 2010 from slightly negative or zero growth in 2009, that recovery, which is expected to be modest, is already priced in, he added.
Companies’ profits in the fourth quarter of this year won’t be disastrous, but they won’t be as good as they were in 2008, said Monica Agudelo, a stock trader with local brokerage Asesores en Valores.
“Companies’ fundamentals don’t justify such an increase,” she said.
Arnoldo Casas, a market analyst with local brokerage Profesionales de Bolsa, talks about an asset bubble fueled by the central bank’s expansive monetary policy that has cut interest rates to a current 3.5% from 10% in December 2008.
Pension funds, which are already very close to the 40% they are limited to invest in equity, will buy much less in the early months of 2010 and smaller investors may opt to sell shares to pocket recent gains, said Jorge Zuniga, a market analyst at Asesores en Valores, who added he sees limited increases from now on. (Dow Jones)