Colombia: The Hidden Latin American Gem
Judging by the all the volatility in the markets and the gloomy headlines blanketing business periodicals, one would think the global walls of capitalism and democracy were crumbling into oblivion. That’s why it’s a nice diversion to discover a diamond in the rough, shining through the darkness in the form of the Colombian stock market. How special is this South American gem? An +1,845% return over 10 years sounds pretty exceptional to me. Those are the results that Professor Dr. Mark J. Perry from the University of Michigan calculated in a posting he recently wrote about the MSCI Colombia stock market index in his blog, Carpe Diem.
Fueling the surge in the equity markets has been a right-leaning, free market government with a hawkish defense stance, led by President Álvaro Uribe for the last eight years. The voters voted to continue Uribe’s mandate by voting in his former defense minister, Juan Manuel Santos, who promises to keep the disruptive guerilla forces operating under Revolutionary Armed Forces of Colombia (FARC) in check.
Colombia has been a close ally of the United States, thanks to their support of a joint crackdown on drug smuggling into the U.S. In return for their support, Colombia has received a nice fat $600 million check from the U.S. each year. What would even make our relationship tighter is an approval stamp placed on an awaiting U.S.-Colombia free trade agreement, which Congress has inexplicably kept on the backburner.
The U.S. and Colombia also agree on something else…their mutual disdain for Venezuelan leader, Hugo Chavez. Mr. Chavez poses a threat to the region, but Santos and the wave of free market leaders in the territory are more likely to wreak havoc on the Venezuelan leader according to Investor’s Business Daily:
“But Santos is probably most dangerous for Chavez, because Colombia’s rags-to-riches success story is so dramatic — showing that any beat-up nation can drag itself out of misery through markets — and because Venezuela and Colombia are such close neighbors. Word gets out about how well things are going in Colombia and it spreads fast in Venezuela. Santos need never fire a shot at Venezuela to slay Chavez’s revolution because the power of the markets will do it for him.”
Colombia’s Gross Domestic Product (GDP) is not overly large relative to some more developed neighbors, but the World Bank estimated the country’s 2008 GDP at $244 billion, almost triple the figure from five years earlier. The explosive economic growth explains how this market was the highest returning market in the world over the last decade, even eclipsing white hot markets like China, Russia, Brazil, Peru, India, and Turkey, among many others.
How does one invest in this Colombian gem? One way to gain exposure is through an exchange traded fund (ETF): Global X/InterBolsa FTSE Colombia 20 ETF (GXG). This particular ETF is concentrated into 20 positions, with heavy weightings in financial, energy, and industrial stocks. So, as you continue to read about the so-called inevitable “double-dip” recession and collapse of the U.S. dollar as the global reserve currency, please do not forget there are some brilliant free market economies, like Colombia, that are growing brilliantly and producing sparkling returns.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
*DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at the time of publishing SCM had no direct positions in GXG, or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.