Colombia: the forgotten opportunity?

Compared to its CIVETS peers, Colombia seems to fly somewhat under the radar. However, by ignoring Colombia, the world is missing out on a compelling growth story.

Image courtesy Pedro Szekely: http://www.flickr.com/people/pedrosz/

Catedral Primada, Bogota, Colombia

For decades, the notion of investing in Colombia was a nonstarter for many foreigners who feared the ramifications of seemingly perpetual instability fomented by left and right-wing paramilitary groups.

Fortunately for the equatorial nation, the most recent administrations have been quite successful in quelling the power of these narco-terrorists. While groups like las FARC still operate today, their effectiveness is largely diminished. The resulting stability from decreased paramilitary influence and effective government policy has allowed the Colombian economy to finally flourish.

Colombia is now one of the fastest growing countries in Latin America. Last year, Colombia’s GDP grew at  5.9% and is expected to grow by 4.5% this year, faster than Latin American investment darling Brazil.

Further, Colombia’s stubbornly high urban unemployment rate has finally started to recede. It now stands at 12.5%, down from 13.2% a year earlier. This trend bodes well for Colombia’s growing middle class.

Colombia continues to benefit from an increase in foreign investment in sectors like tourism, oil and gas, and mining. With the passing ofa landmark free-trade agreement with the United States last October, foreign direct investment should continue to rise: a bullish long-term catalyst for Colombia’s economy.

Monetarily, Colombia appears to be in pretty good shape juxtaposed to some of its peers in Latin America. Although there were some inflationary concerns earlier in the year, the Colombian central bank has had the luxury of being able to raise interest rates without significant growth consequences.

Recently, bond markets have applauded the central bank’s handling of the economy. This is good news for the growing Colombian banking sector, including the likes of Bancolombia (CIB, quote). 

Evidently, the Colombian economy is well-positioned to continue its ascent. Assuming global growth remains intact, investors should keep an eye on Colombia.

For exposure to this fast-growing frontier market, traders should consider going long the Global X FTSE Colombia 20 ETF (GXG, quote).

GXG currently trades at 21.20, just .75 off its 52-week high.

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