Category Archives: Colombia

China Latin America Trade: Who’s Dependent On Whom?

Yes, I am obsessed with charts. And if you’re still reading this blog with any regularity, you are too. Especially if they’re about China Latin America trade.

I finally had a chance to dig through a BBVA report from last month entitled, “How dependent is Latin America’s Economy on China?” Following are the essential takeaways.

  • Commodities have always taken a significant share of Latin American exports; the level of commodity exports concentration had been declining until the start of this century, which coincides with the further involvement of China in global markets.
  • The shift of China’s economic model makes it the biggest contributor to world commodity demand and the top importer of Latin America’s natural resources.
  • There is a positive China effect on commodity exports concentration; the dependency on Chinese demand for sample commodities has indeed increased during the last decade.
  • However, Latin American countries’ economic growth is far less dependent on China than the commodity exports figures might imply.

Now with those overview bullets out of the way, the first chart that strikes me is shown a few different ways but all with the same conclusion. This is one of the versions, demonstrating the proportion of each country’s exports that are commodities:

2013.03.12.Latam-China commodity exports percent share total

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Chart Of The Day: Emerging Markets Currency Wars Landscape

This is interesting:

2013.03.06.Swan FX Diagram

2013.03.06.Swan FX Table

And here’s an explanation of what we’re looking at:

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Carry trade returns: winners and losers as of mid-November

From the Hindu Business Line:

Though this comes from a story headlined, “Rupee depreciation erodes carry trade returns”, it’s interesting (though perhaps not surprising) to note that Asia is nowhere in this table.

9 Emerging and Frontier Markets Uncle Sam wants YOU to export to

On the heels of the latest update to the World Bank’s annual Doing Business index, I thought I would use this opportunity to try a different take on the usual blather surrounding this study about which country did or didn’t move up five spaces in the shareholders’ rights category.

I recently happened to attend a function sponsored by the US Export-Import Bank that was part of its Global Access for Small Business Initiative. In the interest of not getting bogged down here by too much bureaucratese, the nutshell of this initiative can be summed up as such:

“Increasing exports and access to foreign markets is a proven tool for strengthening our economy and creating durable jobs. The United States is well positioned to capitalize on the types of products and services that fast-growing markets around the world are demanding. Ex-Im Bank is committed to ensuring that American small businesses can compete in this global climate.”

For those not in the habit of tuning in to this sort of thing, this initiative basically is targeting American small businesses looking to export to emerging and frontier markets. At first glance, this isn’t too far off from what the Overseas Private Investment Corporation (OPIC) does, but the focus here is less about investing overseas and more on businesses looking to export overseas. Where exactly overseas? Officially, anywhere, but Ex-Im representatives made a point of letting the audience know that those looking to export to the following nine countries would receive special attention, determined by “a variety of macroeconomic indicators”:
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EMPEA’s Sarah Alexander on a post-BRIC world

An old saw from the journalism universe has it that once you start hearing the same quotes from different people, it means one of two things: either you’ve reported the hell out of the story and it’s time to start writing; or you haven’t dug deeply enough and have more reporting to do.

Helpful, right?

Anyway, Emerging Markets Private Equity Association President Sarah Alexander was on CNBC yesterday saying some things that I know I’ve heard somewhere before…I just can’t remember where…

Basically, for those looking for more assurance they’re not alone, EMPEA members apparently like these countries and regions:

Sub-Saharan Africa

…and these industries:

Health care
Consumer goods

Is there an echo in here?

Latin America Political Risk: perception vs. reality

The Gold Report has an exclusive interview with Carlos Andres chief analyst and managing editor of the Frontier Research Report and the Global Resource Investor that goes into rather gritty detail on risk assessment in the mining sector. If this is your thing, I would recommend reading the entire interview, but following are the bits that grabbed me the most.

On Peru:

Carlos Andres: Now is one of those times where perceived risk is moving close to actual risk. It’s narrowed, even in some of my favorite jurisdictions, like Peru, which is a mining powerhouse and is No. 2 in the world in copper, No. 2 in silver and No. 6 in gold. Nevertheless, it’s experiencing some problems with local unrest to the point where it’s receiving international attention. It’s brought a cloud over Newmont Mining Corp.’s Minas Conga project, which has the green light from government but is moving very slowly in the face of local opposition.
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Not All ‘Failed States’ Are Failed Markets And Colombia Stands Above The Rest

How do we quantify political risk?

This is one of the big questions underlying the recent release of the eighth annual Failed States Index, a joint effort from Foreign Policy Magazine and the Fund for Peace. This index should give all emerging and frontier markets investors pause, at the very least to reconsider how to assess risk in markets where information availability lags far behind North American and European standards.

For those unfamiliar with it, the Failed States Index intends to rank countries according to-and this is my paraphrasing of the effort in a concise manner-how vulnerable a government is to collapse into anarchy. It takes into account a variety of inputs describing the social, economic, political and military states of affairs in 177 countries.

A quick perusal of the 2012 ranking yields a number of countries in the high risk end of the spectrum that feature prominently in several ETFs: GlobalX FTSE Colombia GXG, Guggenheim’s BNY Mellon Frontier Markets FRN, Market Vectors Africa AFK, iShares Thailand Index Fund THD, iShares MSCI Philippines EPHE, Market Vectors Egypt Index EGPT, FTSE Andean 40 AND and Market Vectors Indonesia IDX, to name just a few. And this does not include the increasing array of blue chips now depending on these very markets to sustain growth, ranging from Coca-Cola KO to General Electric GE to Glencore GLCNF.PK.

The objectivity of specific variables is certainly up for debate, but given how wide ranging the criteria are, disproportionate influence of any one variable is sufficiently mitigated, resulting in a compelling picture for the world’s frontier markets. While the so-called CIVETS acronym is gradually trending higher as a discussion framework for this niche of the investment universe (as shorthand for Colombia, Indonesia, Vietnam VNM, Egypt, Turkey TUR and South Africa EZA), the context of how Colombia is perceived vis-à-vis state failure compels a more appropriate comparison first. The following bar chart shows annualized historical returns of local stock market indices for the highest risk countries in the index that are tradable on a retail basis:

Read the rest of this article at Seeking Alpha.

Colombia’s Ecopetrol = Brazil’s Petrobras means it’s time to sell

I’m in transit at the moment so I don’t have time for daily headlines today, but I do have a piece on Ecopetrol running on Emerging Money:

Last week’s announcement that Colombian oil company Ecopetrol passed Brazilian giant Petrobras to become Latin America’s largest company by market capitalization was a tribute to how far Colombia has come since the 1990s. It was also a nice complement to the effective start of the country’s free trade pact with the United States. And it was a sign that investors should think about selling Ecopetrol.

Petrobras is already back on top in the market cap rivalry. The Colombian economy may be a model, with 5% real GDP growth, low inflation, booming foreign direct investment and a successful dismantling of what was once the world’s largest black market for dollars.

Even emigres are returning home to this tiger that used to be better known for cocaine trafficking.

But virtue cannot put hydrocarbons in the ground. Brazil’s proven oil reserves are estimated at six times the size of Colombia’s, according to the CIA Factbook. That means Petrobras is virtually destined to be a much bigger oil company that Ecopetrol.

Ecopetrol could not have managed its recent rapid growth much better than it has. It has better efficiencies of scale than Petrobras, but that efficiency is at least close to being fully priced in.

The company has quadrupled in price since the end of 2008.

Ecopetrol’s drawing even with the mighty Petrobras also reflects a Colombian peso that is stronger – or should we say less weak – than the Brazilian real. But that situation also cannot last forever, given how integrated both countries are in trade with the US, trade with China, and global commodities markets.

Colombia cannot afford to have the peso/dollar relationship diverge significantly from the real/dollar; its exports will become too expensive.

The Colombian central bank may not be anywhere near as vocal (desperate?) as its Brazilian counterpart in what is effectively a managed currency devaluation, but the Colombian peso is approaching its maximum appreciation limit. The higher it goes from here, the sooner we should expect monetary authorities to intervene to weaken it.

Nor can Ecopetrol buck a global macro “risk-off” environment forever. If the result of the current queasy market mood is not a weaker peso, it may be lower oil prices, which would imply a stronger US dollar, which leads to a weaker peso.

If it’s not slower growth at home, it’s slower growth elsewhere, which lowers demand for exports. Colombia’s trade is already more US-dependent and less diversified than Brazil’s, and the implementation of the free trade pact is only going to make it more so.

This does not mean that Ecopetrol shares are due to crash. They may even have a bit more room to run, as Colombia continues to meet its challenges and investors overcome past stereotypes and realize what the country has achieved. But the end of the upside for this stock cannot be far away.
This article was originally published here.

Latin America Infrastructure Project Finance: the top 100

Brazil, Mexico, Peru and Colombia account for two-thirds of the top 100 infrastructure finance projects in Latin America this year, which collectively will total nearly US$200 billion, according to a report by CG/LA Infrastructure, Inc. By sector, the favorite is transportation, accounting for US$90 billion, half of it in Brazil. The obvious indication here is that this is Olympics and World Cup preparation. I’ve refashioned the data in the following graphs to give a more (to me, at least) comprehensive visualization of these numbers:

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The Next 5 Emerging Markets To Watch?

As part of the Atlantic Monthly’s sporadic coverage of developing markets, it recently proposed Turkey, Indonesia, Kazakhstan, the DRC and Mexico (with Nigeria as the sixth man coming off the bench) as the next 5 emerging economies to “change the world.” And because I hate websites that force you to click through a different page per item of a list, presumably just to keep you clicking, I am summarizing it all on one page here to make for easier digestion.

Directly from the intro:

“Now that we understand the global hierarchy to be less fixed than it once was, who will rise next? The conditions for a rising power are so complicated and so reliant on outside factors beyond any one country’s control that accurately predicting them would be impossible. Still, some countries seem better positioned and better managed than others.”

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