As has been well-documented, Latin America exchange traded funds are enduring another year of dreadful performances at the hands of slumping commodities prices. Down more than 44% year-to-date, the G lobal X FTSE Colombia 20 ETF (GXG) is no exception to that theme.
It is not surprising Colombian stocks and GXG have struggled this year. The American nation is a major producer of silver, copper and, to a lesser extent, gold. But to top it all off, Colombia is being punished by faltering oil prices as well. Those factors and others have made GXG one of the worst-performing non-leveraged ETFs of any type this year.
It was just a few years ago when Colombia was one of the brightest emerging markets stars, but slumping commodities prices have dimmed that light. Last year, Colombia’s central bank had to hike interest rates to cool inflation. Two years ago, Fitch Ratings upgraded its long-term foreign issuer default rating on Colombia, South America’s second-largest economy, to BBB from BBB-.
Those positive events are, obviously, in the past and Colombian are currently struggling. However, patient investors can still find long-term opportunity with South America’s second-largest economy.
“From Europe, to the United States, to East Asia, Colombia has aggressively pursued free trade agreements. Unfortunately, just signing agreements on paper cannot immediately create new supply chains on the ground,” according to a Seeking Alpha analysis of Colombia. “One critical bottleneck is the country’s subpar road system. Colombia is rich in natural resources, but getting those resources to port can be as expensive as shipping them to Asia.”
In recent years, Colombia’s production growth turned it into South America’s third-largest oil producer behind Brazil and OPEC member Venezuela. However, some of Colombia’s headline-making oil finds have not been as lucrative as previously hoped and Ecopetrol lacks the offshore heft to compete with other major global integrated oil companies.
However, for now, many investors are cutting their losses as outflows from emerging markets ETFs continue at a blistering pace. Developing world equities have to contend with plunging currencies, slack commodities demand and stumbling stocks in China, the largest emerging market. [Emerging Markets ETFs Keep Bleeding Assets]
“The Santos government is pursuing an aggressive infrastructure plan. The odds of success of the rural elements of this strategy will be greatly improved if development plans are free from guerilla attacks,” according to the Seeking Alpha analysis of Colombian economics.