Implications of the Colombia Peso >2000/$USD

This week was the first week in more than 4 years that the Colombian peso closed at a rate of >2000 to the $USD – a very important technical and psychological number.  Granted, all emerging market currencies globally have been selling off against the $USD due to the Federal Reserve taper for some months now.  But the last time we saw these rates (~2008-9) the world was a much different place.  In 2009 the world was literally coming to an end as big banks were failing, mortgages were underwater, the Eurozone was at risk of imploding, and global unemployment skyrocketed.  Scary times – but are we really there again?

At it’s lowest low, the Colombian Peso traded at between 2300-2500 to the $USD at the peak of the financial crisis (from Feb-April 2009) giving us an important guide to “worst case scenarios” when we evaluate investing in Colombia.  (Side note: I’m in the middle of doing a 5 year currency analysis that I will save for a blog post in coming weeks that actually demonstrates how stable the $COP was during the global financial crisis until now against a wide range of global currencies and the $USD.)

President Juan Manuel Santos even sang praises at Davos this week as the Colombian peso sold off and was quoted as saying, We’re happy with it where it is, and I’d say that if it weakens a bit more we wouldn’t be sorry.”  As much as I secretly do hope for continued weakness in the Colombian Peso (I will convert/invest more $USD -> $COP) I do think market sentiment is a bit overblown specific to Colombia.

I actually caught two cases in my casual readings this week where market commentators called out Colombia specifically as an example of the kind of emerging market that is not to be lumped in with Brazil, Russia, India, Ukraine, Turkey, Argentina, Venezuela, etc., where we are seeing serious currency, political and economic volatility.

Ruchir Shamra (via WSJ):  Head of Emerging Markets at Morgan Stanley on Colombia as a current emerging market “star”.

Michael O’Sullivan (via Bloomberg):  Emerging markets as a value trap save for Colombia @ 1:50

And then Colombia’s central bank head Mauricio Cardenas observed the latest from the US Fed as “good news” for Colombia due to fiscal prudence and low inflation.  (Via Dan Molinski, WSJ)

I’m not a professional currency trader nor macro economic strategist, but it appears that Colombia (as the #3 largest economy in Latin America after Brazil, Mexico) is demonstrating itself as possibly the #1 most stable (politically and economically), #1 most balanced (commodities, agriculture, services, manufacturing) and financially well run (inflation, real GDP growth, current account, free trade) in the Latin American region.

I think the Colombian Peso @ >2000/$USD is a great time to invest and will reward those investors with a mid-long view and tolerance for some volatility in 2014.  For those who share our view that Colombian Real Estate is the best place to put your emerging market money to work, let us know how we can help.

Brad Hinkelman – brad@casacol.co

Founder/Owner – Casacol SAS

 

Share your thoughts