Colombia at risk of losing Emerging Market status warns JP Morgan

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Stock market in the red after JP Morgan report on Colombia. Photo: Daniel Foster/Flickr

The US investment bank JPMorgan, in its most recent report, warns that the Colombian economy faces depleting cash reserves, a liquidity crisis, and an unfavorable investor climate. “We see no major positive drivers for Colombian equities: an unappealing macro scenario and an uncertain political landscape,” highlights the report.

Poor earnings across the market, compounded by Colombian stocks “failing to meet the liquidity threshold” of the Stock Exchange’s MSCI Colcap index, could “potentially reclassify Colombia out of EM (Emerging Markets), triggering outflows and lower visibility,” claims the bank. Should Colombia lose its EM ranking, the economy would be reclassified as a high-risk Frontier Market.

The negative forecast from JPMorgan resulted in a major downturn for the Colombian Stock Exchange (BVC) and the lowest for the MSCI index since the pandemic. The BVC lost 2.45% on Tuesday, closing at 1,051 points. The last time Colcap saw this number was in March 2020 with the declaration of the coronavirus health emergency.

During a tumultuous Tuesday for the Bolsa de Valores de Colombia – BVC – preferred and ordinary shares were hit across all sectors, with ISA, Éxito, and Conconcreto leading the losses. Bancolombia fell from 4.99% to 4.42% and Banco de Bogotá was down -4.10%. Insurance giant Grupo Bolívar lost 3.38% of its market price, and natural gas supplier Promigas was down -4.42%. Other BVC indices also saw declines, with Coleqty down 2.24%, along with Colir (-2.21%) and Colsc (-1.63%).

Almost all companies listed on the Colombian Stock Exchange incurred losses on Tuesday. ISA’s shares were hit the hardest, experiencing a 9.03% retreat and closing at $14,010 pesos. Éxito’s shares followed, dropping 6.48% to $2,800 pesos. Additionally, Conconcreto, a construction-focused company, suffered a 6.22% decline, and cement manufacturer PF Grupo Argos lost -3.18%.

The negative focus on the government of President Gustavo Petro’s management of the economy also impacted the bond and securities market, with Tuesday reporting only $46.793 million worth of trades at the BVC; representing a decrease from the previous Tuesday’s $49.071 million.

These trading volumes appear notably low when considering Colombia’s approximately $350 billion economy. On Monday, despite the Labor Day public holiday in the United States, foreign currency trading was less than COP$6,000 million – equivalent to USD $1.5 million, yet another negative sign that issuers in the capital market are placing equities elsewhere.

The BVC sell-off comes as the government of President Gustavo Petro confronts another political scandal after the President’s older brother, Juan Fernando Petro, gave an explosive testimony confirming that the 2022 Presidential campaign violated finance regulations and thresholds.

Most damning in an interview given to journalist La Nena Arrazola is an affirmation that convicted drug traffickers and ex-paramilitaries raised the vote count from prisons to favor the left-wing candidate. During visits to the maximum security prison La Picota in Bogotá, Juan Fernando Petro claims that a “million plus votes” were secured for the second-round victory of Gustavo Petro; votes originating in the conflict areas of Urabá, Norte de Santander, and the Magdalena Medio, where illegal armed groups maintain a strong presence.

In exchange for pushing the vote count from within prisons, Juan Fernando also confirmed the existence of an agreement known as the “Pact of La Picota” and went on to question the legitimacy of the government. The interview by Caracol TV’s “Los Informantes” reveals that drug traffickers and representatives of illegal armed groups were offered incentives and benefits, such as amnesty and no-extradition to the US, in exchange for their participation in the 2022 election campaign.