Now Might Be the Time to Invest in Colombia
NEW YORK (TheStreet) -- As most investors know, emerging markets have been subject to panic selling for the last couple of months, with the main focus on Turkey, South Africa and the Ukraine. The panic has hurt equity prices in most of the emerging markets. The iShares MSCI Emerging Markets ETF (EEM) is down 6.3% year to date, according to Google Finance.
This type of indiscriminate selling is not new, of course, and it potentially creates an opportunity to buy an emerging market with seemingly no fundamental connection to the current panic. One such country is Colombia and the Global X FTSE Colombia 20 ETF (GXG).
Fundamentally, Colombia's GDP growth has been solid at 4.8% in 2012, 4.5% in 2013 and, according to Banco Bilbao Vizcaya Argentaria estimates, 5% for 2014. Inflation is running at 2%, which is surprisingly low considering inflation is more than 10% in Argentina and 5.5% in Brazil. Colombia also fares will with a debt to GDP ratio of 32% and a small current account deficit.
Part of the story is that Colombia has become an oil exporter, producing over one million barrels per day with expectations that growth will continue but it only consumes 400,000 barrels per day.The Colombia 20 ETF launched in 2009 as Global X' first ETF and has been able to attract $86 million in assets, which is impressive for such an off the radar investment destination. The largest sector in GXG is financials at 36%, followed by energy at 23%, utilities and materials at 15% each and consumer staples at 9%. With only 20 stocks in the fund it is top heavy. EcoPetrol (EC) is the biggest holding at 13% followed by BanColombia Preferred at 11%. From the top down GXG has been held back by virtue of being heavy in natural resources and in an emerging market. Over the last 12 months EEM is down 10% compared to 27% for the iShares MSCI Emerging Markets Materials Sector Index Fund (EMMT) and a similar 28% for GXG.
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