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Summary Colombia is projected to have the highest Annual GDP Growth in Latin America in the next 12 months. The Global X MSCI Colombia ETF is trading below its book value and is also trading at its 52 week low. The fund has witnessed a sharp decline in its price since 2014, yet financial performance of the fund’s top 10 holdings during this year was favorable. General exposure to this ETF is a wise endeavor, while specifically investing in the banking industry may be wiser, due to its lower valuation and superior financial performance during 2014. Given the current low oil price environment, Colombia is certainly a country worth investigating for a potential rebound, as the Global X MSCI Colombia ETF (NYSEARCA: GXG ) has witnessed a sharp decline in price since September 2014; the fund reached a high of 20.78 around this time and is now trading at 8.96. Despite the risks associated with its economy being dependent on oil exports, and the fact that it has had the highest political risk among countries in Latin America, there are still ample opportunities to be found after investigating the valuation and current price of this ETF; the fund is trading below its book value and is also trading at its 52 week low. Moreover, Colombia has been among one of the fastest growing countries in Latin America, and has the highest economic growth projections for the next twelve months. GXG data by YCharts Global X MSCI Colombia ETF The fund has been consistently declining since 2014, and is extremely far from its 52 week high of 20.78. The recent decline in the price of oil has attributed to a drop in the fund’s price, and has consequently created attractive valuation : P/E ratio: 15.91 P/B ratio: 0.92 P/S ratio: 1.01 The fund’s holdings are extremely diverse, and invest into the following industries: Financial Services: 36.74% Basic Materials: 16.85% Utilities: 16.46% Industrials: 6.66% Economic Outlook Colombia has a favorable economic outlook for the next twelve months, and will lead Latin America in Annual GDP Growth. The following projections have been made for the 2nd quarter of 2016 Annual GDP Growth will increase from 2.8% to 3.2%. Inflation will remain near 4.4%. Exports will decrease by 3.1%. FDI will increase by 22.9%. Crude oil production will decrease by 0.7%. Retail sales will increase by 4.42%. Consumer spending will increase by 3.2%. Consumer credit will increase by 10.4%. Overall economic projections for the next twelve months appear to be very favorable for the country, with slight Annual GDP growth projected for the next twelve months. An increased trend of consumption and retail sales is projected for the next twelve months, which will further attribute to economic growth. Most important to note, is that the low oil price environment has not deterred FDI, as this is projected to increase by 22.9% during the next 12 months. Latin America Annual GDP Growth Comparison Recently Colombia has had the highest Annual GDP Growth, and is on track for higher economic growth during the next twelve months. While Peru and Chile have ample potential for long term recovery due to the current adverse impact of low commodity prices, a twelve month outlook provides the most favorable results for Colombia. Annual GDP Growth 2012 2013 2014 Current 2nd Quarter 2016 Projections Colombia 4 4.9 4.6 2.8 3.2 Peru 6 5.8 2.4 1.7 2.03 Argentina 0.8 2.9 0.5 1.1 0.76 Chile 5.5 4.2 1.9 2.41 2.37 Brazil 1.8 2.7 0.1 -1.6 -0.3 Source: World Bank Top 10 Holdings Overall, the financial performance of the fund’s top ten holdings has been exceptional, which makes the fund’s sharp drop in price somewhat undeserved. The fund’s holdings had a 10.6% increase in net revenue and a 10.8% increase in net income. An industry specific approach provides a mixed outlook regarding valuation and financial performance: The banking industry can be considered superior, due to its extremely attractive valuation and having exceptional growth. The utilities industry also had exceptional growth, and its valuation is relatively attractive. The consumer products industry has relatively attractive valuation, but experienced negligent growth. Increased projections for consumer spending will be a positive driver for future growth. The construction industry had substantial growth, but also has extremely high valuation. For risk seeking investors, the main holding in the oil industry has low valuation, although financial performance was not favorable in 2014. Value Based Approach Ecopetrol S.A and Bancolombia SA are two options for valued based investors to gain exposure to Colombia, as both companies have lower valuation than the ETF. Bancolombia SA’s historical P/E has been exceptionally higher in the past, with a five year P/E high of 38.61 . The banking industry holdings in the fund were among the top performing, and Bancolombia SA is a superior pick considering its net income increased by 24% while the fund’s price dropped substantially. Ecopetrol SA is a riskier pick as its net income and net revenue have been consistently declining since 2012, and sole exposure to this industry may be risky. However, valuation is the lowest of the fund’s top 10 holdings. Conclusion Now is an strategic moment for investors to gain access to Colombia’s growth, which is set to outpace other countries in Latin America during the next twelve months. The low oil price environment has created attractive valuation for the Global X MSCI Colombia ETF, which is further edified by the projected growth for Colombia. General exposure to this ETF is a wise endeavor, while specifically investing in the banking industry may be wiser, due to its lower valuation and superior financial performance during 2014. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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