Colombian stocks are surging in upside-down world where stagnation becomes a welcome force
Colombia is offering the latest case study of just how bad news can sometimes become good news—for markets at least. With President Gustavo Petro’s administration struggling ahead of elections set for next year, the emerging thesis is based on the growing perception that things can only get better.
On the surface, there’s lots that could scare investors. Fitch just downgraded its outlook on the country to negative because of a rising fiscal deficit and spending pressures. Petro, known for his unusual outbursts on X, isn’t helping either. He’s lost 13 ministers in three months, with the latest departure involving finance chief Diego Guevara over reported disagreements about the need for budget cuts. The chaos was best exemplified last month in a bitter televised cabinet meeting that stretched on for six hours and exposed deep internal grievances within the country’s first leftist government.
“The Petro administration has had such a hard time executing its vision that it has gone from ambition to stagnation,” Sergio Guzman, the director of Colombia Risk Analysis, wrote in a recent report, arguing that the left-wing leader—who can’t run for re-election because of term limits—would still try to push ahead with an agenda that’s been known to be critical of the country’s energy industry in an effort to cement legislative victories ahead of the election.
“The remainder of its term will be difficult to navigate, with much uncertainty on the part of the private sector,” Guzman continued. “The economy is on hold—political uncertainty, declining oil production, and external shocks threaten foreign investment and aggravate the fiscal deficit.”
Stock market gains
It’s exactly that stagnation, however, that markets—which usually don’t like uncertainty—seem to be interpreting as a hopeful sign. Petro’s administration may be messy, but investors seem to believe that things can’t get much worse. Shares of Ecopetrol SA (NYSE: EC), the state oil company, have surged nearly 23% year-to-date, while Bancolombia (NYSE: CIB), the country’s largest bank, has gained 33%. The S&P Colombia Select Index, which tracks the largest and most liquid traded companies in the country, has returned nearly 13% over the same period, drastically outperforming the S&P amid a decline of 1.9%.
The Colombian peso has followed a similar trajectory, gaining around 8% against the US Dollar over the past three months after a year of declines. That’s an impressive gain for a government churning in mayhem, and it’s all hinging on a hunch that anything that comes next will have to be better than the status quo.
Petro—a former member of the M-19 guerrilla group who spent nearly two years in jail before a peace agreement was reached with the government in 1990—has not been popular with the country’s business classes, famously feuding with US President Donald Trump and even saying that cocaine is no worse than whiskey. He’s also got one of the lowest approval ratings of any sitting president in South America, with just over a third of voters giving him a favorable rating.
Volatile year ahead
While Colombia Risk Analysis is anticipating a volatile year as Petro tries to cement a legacy with calls for a referendum on stalled health and labor reforms—and as a myriad of candidates look to position themselves ahead of the coming election—it’s expecting some of the worst possible outcomes to be tempered, despite all the noise to come.
“We continue to believe that Colombia’s institutions are strong and will prevent any democratic backsliding or authoritarian tendencies that may emerge from Petro who has become increasingly frustrated and exasperated with the political blockages, legal obstructions or financial constraints,” Guzman wrote.
It’s a hopeful view, and perhaps a rational one for a country where right and center-right governments tend to prevail. But more cautious investors only need look next door in Venezuela, which has been proving time and time again over the past 25 years that rock bottom knows no bounds. The market may be counting on a change that could restore a more business-friendly administration, but a lot can happen in a year. Vicky Davila—a journalist and fierce Petro critic who’s been dubbed by some to be a Colombian take on Venezuelan opposition leader Maria Corina Machado—is currently leading in the polls with support from 13.6% of voters, while Sergio Fajardo, a centrist, comes in second. But Gustavo Bolívar, a Petro ally, clocks right behind them in third place.
