Colombia’s Peso And Soaring Stocks Put Market Faith In Discipline To The Test

The Colombian peso and local equities enter Thursday trading as two of the hottest stories in emerging markets, even as questions pile up about how long the good news can last.

The dollar closed around 3,77 pesos on Wednesday and briefly traded closer to 3,73, giving the peso a daily gain of a little more than 2 percent and cementing one of the strongest rallies in the region this year.

The move comes with the global dollar index slipping back below the 100 mark as investors price in future US rate cuts and rotate again into risk. Behind the local FX strength sits more than just global sentiment.

Bogotá’s debt-management team has been issuing external debt and using derivatives to access cheap dollars, then selling several billion into the onshore market.

The strategy, combined with a still-punishing 9.25 percent policy rate at Banco de la República and a firmer salaried job market, has pulled in carry traders and local savers who prefer hard-currency bonds and money-market funds to government experiments in credit and pensions.

Some analysts argue, however, that the peso’s level is now “over-managed” and masks Colombia’s softer fiscal position and the ratings downgrades delivered earlier in the year.

Technically, the dollar–peso pair is trapped in a firm downtrend. On weekly charts it sits well below long-term moving averages, with momentum deeply negative and the relative-strength index edging into oversold territory.

Daily and four-hour candles are glued to the lower Bollinger band, with support around 3,70 and resistance near 3,80, suggesting that any surprise in US data or local policy could trigger a sharp snap-back in the dollar.

Equities, meanwhile, are enjoying the other side of that trade. The MSCI Colcap index added about 0,4 percent on Wednesday to trade near 2,040 points, extending a near-50 percent advance so far this year and building on last month’s push through the 2,000-point barrier.

Rebalance hits major stocks as cautious foreign flows test Colombia

A quarterly rebalancing took effect this week, bringing retailer Grupo Éxito into the benchmark and ejecting ETB and Canacol in a reshuffle that favours more liquid, better-governed companies.

Stock pickers have been rewarded. Recent standout winners include ISA, up 5,84 percent on Tuesday, preferred Grupo Sura with a 4,47 percent jump, and Davivienda Group’s preferred share gaining 3,10 percent in the same session, while BAC Holding International advanced 2,83 percent and preferred Cementos Argos surged 8,79 percent over the latest week.

On the losing side, the rebalance punished Davivienda Group’s preferred stock with a 12,89 percent slide, followed by weekly declines in preferred Grupo Sura, Celsia, Ecopetrol and preferred Grupo Aval, all down between 3 and 6 percent.

Heavy trading has concentrated in Ecopetrol, preferred Cibest and preferred Grupo Argos, signalling that institutions, not day-traders, are steering the tape.

International vehicles tell a similar story of enthusiasm mixed with caution. The Global X MSCI Colombia ETF has climbed close to 50 percent over the past year and gained again this week, yet the now-inactive iShares Colombia fund has featured on lists of ETFs seeing outflows, a reminder that some global money is still hedging its bets.

For now, investors are choosing to trust the central bank’s orthodox stance and corporate balance sheets more than the government’s fiscal experiments, but the charts suggest there is little room for policy error before the super-peso and record-high equities are tested.

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