Patrick
Everybody talks about the Colombian real estate market. Today I want to present another way to invest in Colombia without leaving the comfort of your house – no matter where you live.
Does the name Luis Carlos Sarmiento Angulo mean anything to you? Maybe it should.. he’s the chairman of the board of directors in Grupo Aval, a massive Latin American banking conglomerate, and the richest man in Colombia.
Anybody who has ever dealt with a bank in Colombia will know how they operate: Painfully slow, with high prices and a very low risk tolerance.
If you win, the bank wins. If you lose, the bank still wins. Why? Because they make sure to have enough co-signers to guarantee that they never lose on any of their investments. And even if they should lose on the principal, they will have secured enough collateral on your credit and collected enough fees and interests to make up for it. Sounds like a terrible place to be a client, right? It is. But it’s a great business to be an owner of.
Stocks of Grupo Aval (NYSE:AVAL) and Bancolombia (NYSE:CIB) have taken a beaten over the last 12 months. Allow me to explain..
By now it’s no surprise that oil prices have fallen into a slump, dropping from around $108 a barrel to less then $40 a few weeks ago. It currently sits at $49 – up more than 20% in a week, a massive move for what is arguable the most important commodity in world. Here’s the thing: Oil is massive part of Colombia’s exports. With record-low oil prices, demand for Colombian pesos has been record-low as well. The low demand has lead to a massive 77% drop in the Colombian peso vs. the US dollar – the lowest level in more than 12 years. A year ago, on July 22, 2014, a US dollar would buy you 1.842 pesos. Last week the same dollar would buy you 3.261 pesos.
Since AVAL and CIB are both listed on the New York Stock Exchange they have to disclose their earnings in dollars.. which obviously has not been very attractive for either bank. Yet they continue to produce very positive numbers – check out AVAL’s 1Q15 report here and CIB’s 2Q15 report here. Numbers are up on every single important key figure. But even still, an overreaction to oil prices and a weakened currency has sent both stocks tumbling.
AVAL has gone from a 52-week high of $13.92 to a low of $6.47 last week. Down 53%. Today it sits at $7.43.
CIB has gone from a 52-week high of $64.48 to low of $28.68. Down 55%. Today it sits at $32.88.
These are two of the best managed banking institutions in Latin America on sale. Ask yourself the following questions:
- Do you think the richest people in Colombia are going out of business anytime soon? Neither do I.
- Will these businesses be around in 50 years? I’m pretty confident that they will.
- Will the dollar stay strong forever? Of course not.
- Will oil stay cheap forever? Of course not.
Sometimes all it takes is little bit of good news in order for stocks like these to start climbing.
In his book Investment Biker, author Jim Rogers famously wrote about investing in emerging economies: Buy the banks and the brewers! Here’s your chance.
Although a hobby of mine, I am by no means a professional stock analyst. You should always do your own due diligence. That being said, at current prices, I do consider both of the above to be great alternative ways of investing in the most booming economy of Latin America and it’s rising middle-class. Especially over the long-term.
Make sure to put them on your watch-list.
Disclaimer: I do not hold any positions in any of the above listed securities.
The dollar could get even stronger. But, I get your logic and at some point the currency fluctuations will cease.
I would favour Aval over Bancolombia but on a longterm basis both are attractive. One should also look at consumer stocks such as Nutresa and Exito which are completely depressed for the wrong reasons. Low oil is usually good for airlines, I know Avianca is a bit of a mess and has a complex structure but it is dirt cheap.
USD strength won’t last. As a matter of fact I would say it will be the surprise of 2016 that USD will be weak, EM currencies and potentially JPY and EUR stronger, against consensus.
Which bank/platform do you recommend to trade Colombian stocks domestically?
JLL,
I totally agree that many of the big Colombian corporations are getting smacked on the stock exchanges due to the strong dollar. Grupo Éxito is the biggest supermarket chain in Colombian and will be around decades to come.
Airlines are complicated – but look at Southwest and Delta – they’ve been thriving for the past year. I’m not so sure I’d put my money into them, though. As Warren Buffet says: “The easiest way to get a billion is starting with 2 billion and buying an airline” 🙂
The only Colombian stocks I have ever traded are Bancolombia and Grupo AVAL. Both are hovering around their 52-week lows, which could be an excellent entry point. They both trade on NYSE and I’ve bought them through Interactive Brokers.
Good luck, Patrick
Agreed on Buffett and airlines haha.
Why not buy on the local stock exchange, is there no local broker or bank that offers a decent service and competitive price?
To be honest, I have no idea. I have never researched it. I know that you can buy through accounts at Bancolombia and Grupo Aval, but I know nothing about the fee structure or services they offer.
FYI, Bancolombia offers brokerage accounts via Valores Bancolombia. As far as I can tell you can trade via online platform and commission is 0.3%.
Productos Familia, BVC and Nutresa are on my shopping list.
Take care