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Summary The macro-economic struggles of Colombia are reminiscent of those within other countries in the Latin American region. China’s economic issues and commodity price declines have exacerbated the economic problems within Colombia and the rest of the Latin American region. Colombia’s economic struggles have affected the performance of the Global X MSCI Colombia ETF. Only 5 of the top 25 holdings in the fund have a positive YTD return. In order to fully understand the issues within the Colombian economy, it is important to review the economic struggle within the Latin American region. It is no secret that the Latin American region has had a very poor economic run in 2015. The economy in Venezuela is dealing with high inflation that could be seen in quite a few statistics such as the inflation rate , core inflation rate, consumer price index and food inflation. The economic struggle in Brazil can be seen in the following chart with regards to their GDP in their last several quarters. This economic statistic has resulted in a brutal performance for the iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ) in 2015. The fund has a -38.8% YTD return. (Source: Bloomberg ) The Latin American region has been in a downward trend for the last several years in terms of GDP. This can be seen in the next chart below: (click to enlarge) (Source: CNN Money) This chart is as of July 2015. Now it is projected that the Latin American region is expected to contract 0.2% for the year, according to FocusEconomics. Major catalysts to the economic struggle in the Latin American region include the current economic struggle in China and the decline in commodity prices. China has strategically resorted to domestic consumption in order to spark economic growth. This is not good news for a region that heavily consumes Chinese exports. It is no secret that the Chinese stock market index has practically fallen off a cliff since June 2015 . In addition, China has shown signs of slow growth with its recent import totals. China’s imports dropped 8.7% year over year to $143.13 million in November. In October, China’s imports dropped 18.8% year over year. This marks the 13th straight month of year-over-year decline for Chinese imports . Chinese exports declined 6.8% year over year in November. This was the fifth straight month of year-over-year decline for Chinese exports. The Chinese debt to GDP ratio reached a record high for the month of June . The depreciation of the Chinese yuan against the U.S dollar has weakened commodity demand in Latin America and devalued Latin American currencies. This can be seen in the chart below. Notice that the Colombian peso was affected the most. (click to enlarge) The decline in commodity prices is quite evident and can be seen in the following charts involving crude oil, heating oil, silver and gold. (click to enlarge) (click to enlarge) (click to enlarge) (click to enlarge) Unfortunately, Colombia is right in the middle of the economic struggle in the Latin American region. The Colombian stock market has declined by over 31% YTD . Colombia has experienced a rise in inflation within the past few years. However, the increase in inflation has only accelerated within the past year. The following is the 1- and 5-year charts of the Colombia inflation rate as well as the country’s consumer price index. (click to enlarge) (click to enlarge) (click to enlarge) Thus, the central bank of Colombia has had to raise the interest rate for four consecutive meetings in order to curb the impact of increasing inflation. The interest rate is currently 5.75%. (click to enlarge) Thus, it is not surprising that Colombia has one of the worst performing country ETFs in the market in the Global X MSCI Colombia ETF (NYSEARCA: GXG ). The fund has a YTD return of -41.0%. Out of the top 25 holdings within the Global X MSCI Colombia ETF, only 5 holdings have generated a positive YTD return. These holdings have a combined portfolio weight of only 14.42%. It is not surprising that all of the fund’s price multiples fall short of their Morningstar benchmark totals. Value and Growth Measures Stock Portfolio Benchmark Price/Prospective Earnings 11.90 15.11 Price/Book 0.69 1.54 Price/Sales 0.69 1.04 Price/Cash Flow 1.93 5.42 Given the volatility of Colombian equities, it is no surprise that this ETF would have a greater standard deviation than its benchmark. Unfortunately, the fund is rampant with negative returns and ratios as seen in the fund’s 3- and 5-year volatility measures . 3-year Trailing Standard Deviation Return Sharpe Ratio Sortino Ratio GXG 26.78 -27.45 -1.05 -1.23 MSCI ACWI Ex USA NR USD 12.38 3.31 0.32 0.51 5-year Trailing Standard Deviation Return Sharpe Ratio Sortino Ratio GXG 23.81 -16.57 -0.64 -0.79 MSCI ACWI Ex USA NR USD 15.33 2.99 0.26 0.38 Bottom Line Given Colombia’s economic vulnerability at the moment, I think it would be best served to steer clear of this ETF due to its significant exposure to Colombian equities. Scalper1 News
Scalper1 News