The favourite pastime of anyone who’s invested or looking to invest in Colombia is discussing the COP/USD exchange rate and debating where it’s going to go next. I posted some thoughts on implications of the COP/USD back in January when markets were fretting about emerging markets. Now that other news has taken over headlines I thought it would be time to do a more sober analysis.
Just today, the WSJ posted a very thoughtful article discussing the value of the Colombian peso and the impact that swings in the COP have on industry here. What I would be interesting in from an investment perspective however is the performance of the COP/USD against some other LATAM currencies over the last 5 years – arguably the most tumultuous global investment environment we’ve seen in decades if not the last 50+ years.
Let’s start with a review of Colombia’s LATAM closest “competitors” and their currencies (MXN, CLP, BRL). From the beginning of the global financial crisis until today, the COP has done remarkably well in terms of stability against the USD. Mexican, Chilean and Brazilian currencies have not done nearly as well against the USD ranging from 15-30% weaker than the COP over this period. If you had bought $100k USD in real estate in Brazil vs. Colombia 5 years ago you would have needed an extra 30% in local BRL price appreciation just to match the currency decline.
(Note: Due to the limited currency axis offered by Yahoo, higher levels on the chart represent a weaker currency over the period)
Just for fun let’s illustrate with adding Argentinian and Venezuelan currencies to the mix why democracy, political and economic stability matter to investors. You did NOT want to be on the light blue/purple curves over the last 5 years.
Finally for more fun, I thought we would compare the Colombian Peso vs. the EUR, GBP, CAD and AUD (see below). Could it really be that during the the last 5 years of pre/post global financial crisis and unprecedented global central bank market intervention that Colombia has had a more stable currency vs. the USD than the global benchmark currencies? Also observe the December 2008 period where the world was on the edge of the next Great Depression – the COP can really hold it’s own!
As a purely amateur analysis (I’ve never traded currencies professionally nor worked directly in financial markets) I think we can start to deduce that despite Colombia’s emerging market status, investors can be confident about this country’s ability to effective manage it’s way through both the best and worst of times.
Brad Hinkelman – [email protected]
Founder/Owner – Casacol SAS