Foreigners Buy Colombia ETF for Cheapest Stocks in 8 Years

  • Colcap ETF posted second straight month with net inflows
  • Colcap index is trading at lowest price to earnings since 2008

A plunge in the price of crude oil has dragged Colombian stocks to their cheapest levels in eight years, and investors are starting to seek out bargains.

The iShares Colcap exchange-traded fund traded in Bogota received the equivalent of $8.7 million in net flows in January, the most since May 2014, after investors added $5.5 million in December, according to data compiled by Bloomberg. The last time that the $450 million fund received inflows in consecutive months was in February-March 2014.

The rebound in demand comes after Colombia’s benchmark stock index reached its cheapest valuation since 2008 last month, measured by the ratio of price to projected earnings. Oil producers Pacific Exploration & Production lost 76 percent last year and Ecopetrol SA fell 47 percent as the Organization of Petroleum Exporting Countries’ decision to abandon production quotas sent the price of crude tumbling. That in turn dragged down Colombia’s currency, making the shares more alluring to foreigners.

"For foreign investors Colombian stocks are really cheap now, especially in pesos," Alejandro Reyes, the head of research at brokerage Ultraserfinco SA, said from Bogota. "The recovery in the price of oil is also increasing confidence that Colombia’s economy should do better, that it will be able to grow and fund any deficits."

Oil traded in New York has gained 13 percent since reaching a 12-year low on Jan. 20. Still, prices for the commodity are down almost 70 percent in the past two years.

The peso has lost 45 percent in the past 18 months, making it the second worst performing emerging-market currency, amid forecasts that the plunge in oil prices will exacerbate a current-account already at the widest in at least three decades. As crude dropped 5.2 percent Tuesday, the peso weakened 2.1 percent to 3,397 per dollar as of 9:57 a.m. in New York. It reached a record low of 3,426.86 on Jan. 26.

It’s not yet clear if the stock flows seen over the past couple of months is the start of a longer-term trend, according to Diego Mora, the head of BlackRock Colombia. BlackRock’s iShares unit started the fund in 2011.

"The market has been very volatile, very susceptible to international news, so we still have to see if it’s a short-term rebound or a definite reversal," Mora said from Bogota.

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