The easy returns on financial instruments seen last year will be harder to achieve this year, as the liquidity-driven rally is almost over. The overvaluation and cyclicality of some of these instruments, and political uncertainties, will have a negative impact on returns.
So this is why investors and regular people should have some knowledge about where the opportunities lie in order to make money, protect their savings and hedge their investments.
So let me give you some financial advice on where to put your money in Colombia for this year:
- The dollar: As most of the investments are dollar-related, I expect the local currency to have a couple of volatile quarters as political uncertainty and global risks increase. For the next few weeks I expect the dollar to vary between 1950 and 2020. However, I estimate a higher dollar (2080-2200) by as early as mid-February, as the market begins casting doubt on the global recovery, and political uncertainty increases through an combination of various political alliances and defections – assuming Uribe’s third term isn´t vetoed by the Constitutional Court. If it is, volatility may push the dollar close to the 2,600 key level.
- Public debt securities: Public debt tied to inflation, or TES UVR bonds, will be the red-hot investment in the first quarter, as inflation is expected to spike in the next few months, propelled by commodities prices e.g. food and oil.
- Corporate debt securities: Last year, corporate debt securities tied to inflation saw their prices collapse as inflation fell to a 54-year low. Prices of short-term corporate bonds tied to inflation have risen drastically, devaluing the bonds. With higher inflation expectations, this is a double win (price and interest). Even though is hard to calculate profit expectations, I predict that 3% – 6% in a three-month period is within range.
- Repos at the Colombian Commodity Exchange: Repos are a kind of CD backed by the each local exchange. There are two in Colombia: The Colombian Stock Exchange and the Colombian Commodity Exchange. Repos at the CCE are paying between 6% – 10% depending on the underlying commodity. So remember, no matter what happens with the underlying commodity, your repo investment will always be backed by the CCE.
- Stocks: I personally believe that most local stocks are significantly overvalued. However, there is a stock foreigners must look at, as it could turn out to be a sin not to have some exposure to it in the long term. That stock is EEB (Empresa de Energia de Bogota), which is an electricity and gas holding trading at 9-times forward earnings. This is the type of bargain which hasn’t been seen for many years. The stock actually is trading at COP130,000 (US$67) with a 12M target of COP200,000 (US$110) but even though I have don´t have an estimate over a longer period of time, I would not be so crazy as to say that stock will quadruple its value in five years. Although other stocks may present a wonderful long-term opportunity, for example ISA and Enka, I would not recommend buying them at current prices, and certainly not until we see a major correction in the global markets.