Behind The Plunge In Colombia ETFs [Market Vectors ETF Trust, iShares MSCI Mexico Inv. Mt. Idx. (ETF)]

columbiaEmerging markets’ investable securities, from equities to bonds to currencies, are lately seeing extreme vulnerability to the impact of the Fed’s QE tapering. While the lull is broad-based, the blow is being felt massively in those nations which were trading at higher valuations.

Profit-booking activity amid fears of a further slump in EM securities on an accelerating bond-buying program by the Fed compelled emerging market ETFs to hurtle down in recent sessions. Whatever be its true potential, investors hardly spared any EM fund thanks to the concerns pertaining to faster QE tapering.

This was exactly the case for Colombia ETFs. Colombian funds like Market Vectors Colombia ETF (NYSEARCA:COLX) and Global X FTSE Colombia 20 ETF (NYSEARCA:GXG) are currently trading at a higher P/E multiple than many other Latin American funds like iShares MSCI Brazil Capped (NYSEARCA:EWZ), iShares MSCI All Peru Capped (NYSEARCA:EPU) and iShares MSCI Chile Capped (NYSEARCA:ECH). In fact, iShares MSCI Mexico CappedETF (NYSEARCA:EWW) is hovering at a lower valuation than COLX (read: The Comprehensive Guide to Colombia ETFs).

Three Colombian pure-plays in the ETF world – GXG, iShares MSCI Colombia Capped ETF (NYSEARCA:ICOL) and COLX – lost about 12.5%, 14.3% and 11.8% in the year-to-date frame.  The plunge was steeper than the fall in some Brazilian small-cap funds like EWZS (down 8.7%), Mexican fund EWW (down 5.3%), Argentina ETF (NYSEARCA:ARGT) (down 10.7%) and most importantly Peru ETF EPU (down 5.3%).

With the Fed having decided on another $10 billion of tapering – which leads to $65 billion of monthly bond buying – emerging economies turmoil is back in the headlines. Though the Colombian central bank pushed its currency, the peso, lower through a dollar-buying program in 2013 to give a boost to its all-important export sectors, the steeper-than-expected decline might cause a setback for the economy.

Notably, Colombia is a major exporter of oil, coal and coffee. Coffee prices declined about 20% in 2013 due to the supply glut and are expected to remain under pressure this year as well.

Also, a weaker currency allows exporting countries to sell higher amounts which in turn increase availability in the market, but at the same time weigh on prices.

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