Colombia ETFs, which had a rough start to the year and were trading in double-digit losses, are seeing things turn around in their favor. Like many other emerging markets, Colombia was also a victim of Fed taper and faced rough trading in 2013.
Last year, the economy grew by 3.7% — the slowest pace since 2009. Moreover, a strengthening currency (peso) had adversely hit the country’s manufacturing and agricultural sector causing falling output levels and wages.
However, things have started to brighten for this Latin American nation. Even though the country’s full year 2013 GDP was disappointing, Colombia’s economy grew at the rate of 4.9% year over year during the fourth quarter of 2013. This growth rate is faster than many other Latin American nations, including Chile, Mexico and Brazil.
Also, the country’s monetary policies are closely aligned to keep the annual inflation rate near the 3% target. Though Colombia recorded an inflation rate of 2.51% last month, the central bank expects inflation to reach an annual rate of 3% with an improving economy.
In fact, the central bank has kept interest rates unchanged at a record low of 3.25% for the past 12 months and has extended its dollar buying program. The bank believes low rates will boost spending within the economy and thereby enhance the country’s GDP growth rate.
Along with a supportive monetary policy, the country’s fiscal policies are also aiming to bolster growth. The government is ramping up its infrastructure program and also focusing more on key areas including mining, education and technological innovation. Moreover, the recently signed free trade agreement with the U.S. has spread optimism among investors as it is expected to create new trade opportunities.
Indeed the country is witnessing a falling unemployment level and an improving trade balance. The unemployment rate fell to 10.68% in February from an 11.1% in January (read: The Comprehensive Guide to Colombia ETFs).
These improving macroeconomic trends along with an emerging middle-class economy made Colombian ETFs witness a smart rally over the past one month.
Three Colombian pure plays – InterBolsa FTSE Colombia 20 ETF (NYSEARCA:GXG), Market Vectors Colombia ETF (NYSEARCA:COLX) and iShares MSCI Colombia Capped ETF (NYSEARCA:ICOL) – have all gained in the range of 10% to 16% over the past one month.