Seeking Deeper Waters

Capital Markets

Through strategic reforms and partnerships, Colombia has been shoring up its investment-grade economy, and its capital markets specifically, to leverage fundamentals such as the peace dividend, its international reach, and […]

Through strategic reforms and partnerships, Colombia has been shoring up its investment-grade economy, and its capital markets specifically, to leverage fundamentals such as the peace dividend, its international reach, and a more settled corporate taxation climate that should over the coming terms expedite investment strategy. These both render the economy more resistant to externalities and more appealing to foreign investment, promising market depth. Financial reforms will also mitigate the impact of economic deceleration, where in 2016 GDP rose just 1.6% according to the World Bank.

International Prestige Spells Depth

Today’s Colombian Stock Exchange, Bolsa de Valores of Colombia (BVC), was born of the 2001 merger of three regional stock exchanges in Bogotá, Medellí­n, and Cali, the latter two being more commodities oriented. Since then, landmark steps have been establishing the country as a regional finance hub. On July 22, 2014, the BVC became the 11th member exchange of the United Nation’s Sustainable Stock Exchanges initiative.
Official data indicates that since 2001, FDI in Colombia has risen over 500%, essentially due to the oil and mining sectors. Meanwhile, for the BVC, international activity has been a two-way street. In 2015 the bourse strategically acquired a 51% stake in the outstanding shares of Sophos Banking Solutions, a renowned force in technology solutions and consulting services for the financial and securities industry in Colombia and the region. The deal was effectively the BVC’s inroad to the lucrative technology services industry in Latin America, boosting revenues and shareholder value. Then in 2016, the BVC enjoyed one-year leadership of the World Federation of Exchanges (WFE), having joined the club back in 2004.

While 89 companies were listed on the BVC in 2008, by mid-2016 the number has declined to 71. As Marí­a Isabella Muñoz, the Executive Director of fund managers ColCapital, noted, while, “The government created a secondary market to incentivize more companies to enter, we have (…) very few issuers (and moreover) concentrated capital markets mainly represented in four pensions funds, which are the key players in the private equity and stock market.“ Indeed, there has been a dearth of IPOs, which has spurred BVC diversification into supplementary business lines.

Clear and Diverse Appeal

Juan Pablo Córdoba, President of BVC, is confident of the bourse’s future, drawing attention in a TBY interview to catalysts of investor sentiment. “Colombia has been doing an excellent job of differentiating itself and coming back from a relatively hidden position.“ Foreign investors account for over 30% of the volume traded on the bourse “whereas they were nonexistent eight years ago.“ Similarly, “in the fixed-income market, and especially in government bonds, more than 30% of the stock is today in the hands of foreign investors, compared to 2% five years ago.“ Muñoz revealed that today there are “90 funds operating across Colombia managed by 55 fund managers, 55% of which are local and 45% international.“
“Granted,“ says Mauricio Saldarriaga Navarro, Partner & Executive VP Inverlink, adopting a macro perspective, “the past two or three years have seen a transition from 5 or 6% annual GDP growth to something closer to 2%.“ Yet, he goes on to add, “as the third-largest market in Latin America, Colombia has a great structural relevance for investors.“ The WB anticipates 2.5% GDP growth for 2017, which well exceeds the forecast 1.2% growth for the Latin America and the Caribbean (LAC) region overall. Meanwhile, currency turbulence over the past year or so has positive implications for those in FX. “The peso has depreciated over 50% against the US dollar, (which is) also why valuation multiples are much more reasonable today,“ making for “a great entry point.“


The BVC’s key regional maneuver came in 2009 when merged with Argentinean and Peruvian counterparts in the Latin American Integrated Market (MILA). This standardized the trading and settlement activities of the three markets. Mexico’s stock exchange joined MILA in 2014 to foster mutual trade and investment along Latin America’s Pacific coast, and by 2016 the MILA system was an established contender for Brazil’s Bovespa. The S&P MILA Andean 40 index gauges the performance of the 40 largest and most liquid stocks in the Andean region (Chile, Colombia, and Peru) that trade on the MILA platform. Launched on August 20, 2011, as of April 16, 2017 the index had posted a one-year return of 16.83%.

Some Numbers

The market capitalization (MCap) of listed companies, at a stellar 72.6% of GDP in 2010, had declined heavily to just 29.4% by 2015 amid global volatility. The bourse has duly raised its game to appease the investor community, notably adopting the NASDAQ X-Stream INET trading platform in 2017, enabling sophisticated algorithmic and high frequency trading. According to Index Mundi, the most recent print for the MCap of listed domestic companies was at USD86 billion as of 2015, down from USD262.10 billion in 2012, yet well above the 2005 level of USD50.5 billion.

For 2016 overall revenues of the BVC came in at COP161.4 billion, soaring 43% YoY, with 17% generated beyond Colombia. Total net profit of COP33 billion had climbed 22%, while profitability was evident in the consolidated EBITDA leap of 35% to COP52.9 billion; the consolidated EBITDA margin was 34%. In a good year for the bourse thanks to its diversified financial service portfolio, non-trading revenues appreciated 50%, while trading revenues rose 11%, those of subsidiaries providing leading-edge technical services by 53%, and BVC revenues by 15%. In 2016 the corporate bond market, too, gave a good show, with 65% YoY issuance growth to COP 10 billion. According to the BVC, that market should remain robust in 2017 given lower interest rates. Indeed, at its March 2017 meeting, the Central Bank of Colombia is expected cut the benchmark interest rate by 25bps to 7%. This followed the 25bps cut of February, producing the lowest rate in a year.

As of February 2017, foreign investment accounted for 43% of stock ownership, while the BVC’s 20 leading shareholders accounted for around 72% of the total. Those are followed by brokerage firms of 15% and pension funds on 14%, with the remainder divided among retail investors and real sector funds. From 2008-2016, the capital markets had posted a CAGR of 5%, derivatives growth of 38%, FX growth of 10%, and growth in the equity market of 3%, while fixed-income instruments had shed 4%. Overall capital markets revenue was COP52.1 billion for 2016 broke down into COP12.4 billion from fixed income, COP16.8 billion from equity market, COP7.2 billion from FX, and COP15.8 billion from derivatives transactions. In the equities arena, the benchmark COLCAP index shed 11.2% YoY in 2016, not as bad as the 18.3% decline of 2014, but a far cry from the 2012 leap of 53% YoY. As of April 21, the index had fallen one point or 0.07% to 1,362 from 1,363 in the previous trading session. Historically, the index printed a high of 1940.38 in November of 2010 and a low of 1051.25 in December of 2015.

Colombia’s capital markets will remain dependent on sentiment toward the broader economy. Yet there, the government’s likely meeting of its 2017 fiscal target due to tax reform will bolster investors’ appetites, while higher oil prices and a sizable infrastructure portfolio should galvanize growth momentum.