Leftist’s Flop in Colombia Sparks Wild Election-Bet Stock Rally
(Bloomberg) -- It’s been an unusual start to the year for Colombian stocks.
For one, the market is way up — some 21% in dollar terms, more than almost any other market in the world. And then there’s the odd rationale fueling it: the leftist president, Gustavo Petro, is mismanaging the country and its international relations so badly that, when elections next come around, a more conservative, pro-business candidate is bound to win.
In other words, things are so bad that they’re good for a market that had become the cheapest in Latin America. It’s a decidedly glass half-full take. The election, after all, is still 15 months away. But in the wake of Javier Milei’s rise to power in Argentina — and the dizzying stock-market rally that followed — investors in Bogota are suddenly interpreting Petro’s blunders as just what they need to land their very own free-market champion in the presidential palace.
“There is still a long way to go, but high risk investors are now beginning to play a political shift in the country,” said Juan David Ballen, an economist at brokerage Casa de Bolsa in Bogota. “Publicly traded companies have better fundamentals than those of the government itself. That’s why shares started rallying early.”
The gains accelerated in the second half of January amid growing signs of trouble for Petro — including a dramatic nine-hour standoff with Donald Trump. Colombians overwhelmingly disapproved of his handling of the dispute, according to LatAm Pulse, a survey conducted by AtlasIntel for Bloomberg News. Less than half of Colombians — 42% — say they have a positive image of their president, while 55% view him negatively.
The potential for a shift is drawing comparisons with Argentina, which has seen stocks surge 250% since Milei was elected in 2023 promising an economic shock therapy.
Since taking office, Petro spooked markets by criticizing the central bank and shaking up the leadership at the state-run oil company. His bouts of trouble — from corruption allegations to Congress blocking his reforms to health and pension systems — helped fuel periodic rallies in the nation’s assets. Rising violence rates and poor management of the economy, with sluggish growth and a fiscal deficit widening past official goals, are impacting his popularity.
“Seems that everyone — from the local business community to international investors — have adopted a stance of just waiting him out,” said Roger Horn, senior emerging-market strategist at Mariva Capital Markets. “The upside about Petro’s ego is that he has not built a permanent political party to go on after him, so it’s very likely Colombia will go back to the traditional centrist parties for stability.”
Odds shifted even further against Petro in late January after he picked a fight over Colombian deportees with Trump, who then threatened to respond by imposing tariffs that could’ve wrecked the country’s fiscally fragile economy. Almost two weeks ago, a televised cabinet meeting ended in infighting and tears. At least five ministers have left office since, plus several high-ranking officials.
The recent cracks within the administration are signs to investors that Petro will lack coordination and unity to enact reforms that could potentially harm the economy in the remainder of his term.
“Petro doesn’t have a lot of wiggle room,” said Ning Sun, senior EM strategist at State Street Global Markets. “Even though you can see policy risk in Colombia, the damage he can do is not that high.”
The early bet is not for all. Petro can’t run for reelection, but there is still little clarity on potential contenders and increasing fiscal concerns that could weigh on assets before the vote takes place.
“A political shift could certainly provide strong tailwinds for Colombian assets by moving away from Petro’s policy approach and return to a more market-friendly stance,” said Nenad Dinic, an equity strategist at Bank Julius Baer in Zurich. “But it’s too early to factor this in.”
Cheap Stocks
Discounted valuations have also helped. The Colcap index trades at about 7.9 times estimated earnings, compared with a ratio of 12.1 for the MSCI gauge of emerging-market stocks, according to data compiled by Bloomberg.
Attractive dividends and falling interest rates have given local markets an extra boost. Colcap’s dividend yields are over 7%, higher than the 5.5% average for an index of Latin American stocks. The central bank has cut rates by 3.75 percentage points in the past 14 months.
Financial giant Bancolombia and state-owned oil firm Ecopetrol are seen as benefiting most from a potential change of government, since their sectors have faced high uncertainty under Petro due to controversial reforms and regulatory policies.
Since the start of the year, Bancolombia has been upgraded by firms including Morgan Stanley and BTG Pactual. In its first upgrade since December 2020, Morgan Stanley analyst Jorge Kuri said the company is well positioned to benefit from a “nascent macroeconomic recovery” triggered by the 2026 election.
Ecopetrol, meanwhile, has gained more than 33% this year after losing almost a third of its value last year. Analysts at Bradesco and Citi are among those who recently upgraded recommendations for the shares citing the upcoming elections.
“Ecopetrol is the best way to play Colombia’s election cycle,” Bradesco analysts led by Vicente Falanga wrote in a report upping the company’s ADRs to outperform. “Colombia could shift back to a more center-right government, which would probably have a more constructive relationship with the oil industry.”
--With assistance from Vinícius Andrade.