At Bottom of Stock World, Greece Is Joined by an Unlikely Nation

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A quick rundown of the four worst-performing global stock indexes over the past year produces, for the most part, logical-enough names: Greece (mired in a never-ending crisis); Ukraine (ravaged by war); and Nigeria (fighting an Islamist insurgency).

But how about the fourth?

Try Colombia.

The country’s benchmark stock index has sunk 46 percent in dollar terms over the past 12 months. What’s even more shocking is that the best-performing stock on the gauge -- Bogota’s city-controlled power company known as EEB -- has still lost 26 percent over that time. Now this isn’t a country that shares any of the acute crisis or instability problems that the other three nations do. If anything, it appears close to a deal to end its decades-old insurgency. And its economy, while slowing, is still forecast to grow 3.2 percent this year.

Basically, it all comes down to oil. Colombia’s growing dependence on crude exports over the past decade left it vulnerable when prices plunged by half over the past year, swelling the trade deficit, choking off foreign investment and sparking a rout in the currency.

“The oil price affects confidence, it affects some stocks directly, and it’s related to the peso drop obviously, which has a very high correlation to the index itself,” Rupert Stebbings, the managing director of equity sales at Bancolombia SA, said from Medellin. “It’s a level you probably should accumulate at, but investors are looking for catalysts.”

     What they’re mostly seeing are reasons not to buy.

Foreign Holdings

While prospects for growth aren’t atrocious for a country that expanded at least 4 percent every year since 2010, it’s a comedown. At the same time, taxes were increased and foreign investors are eyeing Latin America with suspicion after a corruption scandal in Brazil sent that country’s stock and bond markets plunging.

In the stock market, fully a third of the Colcap’s 20 members have lost at least half their value in the past year.

In part, it’s a currency-effect phenomenon. But that’s the most relevant comparison for international investors considering whether to put their money in Mexico, Chile, Brazil or another emerging market.

Overseas investors, who were the biggest stock buyers last year in Colombia, have decreased holdings for four of the past six months, according to securities exchange data. Even for locals who ignore the 32 percent drop in the peso over the past year, Colombia’s Colcap stock index is still down 21 percent in peso terms -- the seventh-worst performance in the world.

Crude Exports

Colombian stocks haven’t always been at the mercy of oil, which declined for a third day Friday to $50.47 a barrel as of 8:14 a.m. in New York. Production has doubled in the past decade amid military victories over rebels that opened up new areas of the country to exploration, and crude now accounts for around half of the nation’s exports and about 17 percent of government revenue.

The three worst-performing Colombian stocks over the past year are all energy producers, led by Pacific Rubiales Energy Corp.’s 84 percent plunge. Canacol Energy Ltd. is down 67 percent and state-controlled Ecopetrol SA has plummeted 66 percent.

Financial stocks have taken a lesser hit. Bancolombia, the country’s largest lender, is one of the best performers with a 33 percent drop, and Grupo Aval Acciones y Valores SA is down 35 percent.

Stable or rising oil prices and flows suggesting foreigners and local funds are buying shares again could help convince investors that stocks are poised to rebound, Stebbings said. There may be “renewed cause for optimism” should investors see progress on the government’s efforts to reach a bilateral cease-fire with guerrillas, he said.

“At the moment nothing is especially going in the right direction,” he said. “It’s a macro confidence issue.”

While June saw “strong” buying by foreigners, who added a net $101 million in Colombian stocks, investors’ outlook on the country is still mostly negative and sentiment hasn’t reached an inflection point, according to Credicorp Capital.

“Risks to the economy continue to be biased to the downside,” analysts at Credicorp said in a report last week.

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