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Newest Emerging Market Play: Colombia

Colombia, infamous for drug trafficking and violence, is presenting new investment opportunities through an exchange-traded fund that's making it easier to access its fledgling stock market.

The Global X /InterBolsa FTSE Colombia 20 ETF (GXG), which began trading in December, is the first fund from New York-based Global X Management Co. The company plans to introduce funds that invest in Egyptian and Peruvian stocks next.

Colombia Versus U.S.

Cocaine trading and political instability in Colombia have made headlines for decades, particularly during the murderous reign of Medellin cartel leader Pablo Escobar. But in recent years, Colombia's economy has benefited from the rise of free-trade attitudes under President Alvaro Uribe. As a result, the country's economy grew 3.1% during the first nine months of last year as the U.S. economy shrank.

Resource-rich Colombia exports oil, coffee, coal and nickel. It's home to 44 million people, and the U.S. is its biggest customer, accounting for 35% of exports. Colombia's inflation is 7.18%, higher than the 5% target of its central bank.

Data shows that stocks in emerging markets often rise when U.S. equities fall. Last year, Colombian stocks followed the trajectory of the S&P 500, but evidence suggests they might be headed in opposite directions.

The Global X ETF holds 20 stocks, reflecting Colombia's few publicly traded companies and low liquidity. Holdings in oil company Ecopetrol SA (EC) and Bancolombia SA (CIB) account for 40% of the fund's assets, an unusually high concentration for an ETF.

GXG allots half its assets to financial companies, and energy and materials stocks make up a third. Less than 2% of the fund is invested in telecommunications.
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