When stocks fall across the board a workable strategy is to look for attractive stocks in weak markets. Although such stocks exist across the world, we use Colombian bank stocks as an example. Colombian stocks have suffered greatly as has the Colombian peso as the price of oil has fallen. Bank stocks in Colombia are cheap. And Colombia is gearing up for a huge infrastructure improvement campaign, financed by the banks! Before the peso starts to recover attractive stocks in weak markets include Colombian bank stocks.
Bloomberg Business writes about the slowest growth since 2009 in Colombia.
Central bank Governor Jose Dario Uribe said he expects the economy this year to post its slowest expansion since 2009 as prices for Colombia’s biggest export tumble on global markets.
Calling an estimate of 3 percent growth “reasonable,” Uribe said the central bank’s technical staff also may cut its 2015 forecast from 3.1 percent or 3.2 percent, which is down from 3.6 percent earlier in 2015. While 3 percent would be the weakest since 2009, economists expect Colombia’s expansion to beat the regional average for a fifth straight year.
“We’re in a transition period from an economy that was propelled by the rise in prices of oil and other commodities and so Colombia has to adjust,” Uribe told reporters in Cartagena.
With oil accounting for around half of Colombia’s exports and about 17 percent of government revenue, a 50 percent drop in crude prices has pushed the peso to an 11-year low while the current account gap may end 2015 at a three-decade high.
This sounds pretty grim unless you think in terms of attractive stocks in weak markets and look at Colombian banks or oil companies that will appreciate in value when the price of oil goes back up. Like other nations hurt by sluggish economies Colombia is looking to improve its infrastructure and therefore its competitiveness along with helping the economy with stimulus measures.
Weak Economy but Strong Banks
Fitch ratings of Colombia’s largest banks have been upgraded or affirmed across the board following a recent review, according to Business Wire.
Fitch Ratings has completed its review of Colombia’s five largest banks and their related entities. As a result of the review, the ratings for Bancolombia and Banco Davivienda have been upgraded and the ratings for Banco de Bogota, BBVA Colombia and Banco de Occidente have been affirmed. The Rating Outlook for the ratings is Stable.
The five banks considered in this peer review have market shares between 7% and 22% by assets in the Colombian banking system and together comprise about two thirds of the system’s assets. All of them are universal banks and their total assets range from USD14 billion to USD62 billion. The top three banks (Bancolombia, Bogota and Davivienda) have grown inorganically in the past few years and have a significant presence in Central America.
This information supports our contention that there are attractive stocks in weak markets.
How to Invest in Colombian Banks
Bancolombia preferred stock is available as an American Depository Receipt via Bank of New York Mellon.
Bancolombia – Pref CIB 05968L102
A Bancolombia ADR currently trades for $38.64 a share and pays a 3.47% dividend. It is trading near the bottom of its 52 week range ($36.23-$66.78). Until the last year when oil prices fell this stock traded from the low 50’s to 70. As with all investments, do your homework before risking you money. The risk in Colombian bank stocks is that the economy could get worse if oil does not go back up and the promised infrastructure improvements could fail to materialize. However, oil goes back up so will the Colombian peso and the prices of Colombian bank stocks!