Cablegate: Colombia's Stock Market - Back Where We Started In

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SIPDIS
C O R R E C T E D COPY //PARAGRAPH 4 SECOND SENTENCE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV CO
SUBJECT: COLOMBIA'S STOCK MARKET - BACK WHERE WE STARTED IN
2005

1. Colombia's stock market index (IGBC) has fallen more than
30 percent between May 2 and June 12, 2006. On June 8, the
index fell 9.47 percent, and on June 12 trading was halted 15
minutes before the closing bell because of a more than 10
percent loss in the value of the index. Overall, the index
has dropped to pre-December 2005 numbers, which are still 3
times greater than 2003 figures. Economists and brokers
alike expressed surprise at the rapid decline of the index,
given current positive economic conditions in Colombia.
Throughout the 2005 boom, Central Bankers predicted the
market could react negatively to changes in international
economic conditions (especially related to U.S. interest rate
trends). Colombia's economic indicators remain strong.

2. Throughout 2005, the IGBC ranked among the top five
world-wide on return on investment as rated by the Bloomberg
Company. The index is made up of the 34 most traded
companies, including the banking, construction, and petroleum
sectors. Experts attribute the majority of the 2005 gains to
the market dynamics surrounding the sale of the Bavaria
brewery to SAB Miller and to the privatization of ColTabaco
and the Granahorrar bank. In 2003, the index began near 2000
point level, but by the end of 2004, the index had more than
doubled in value to over 4000 points on positive economic
news and national security gains. The index doubled again in
2005, ending the year over 9500. The index reached its
highest level in March of 2006 at 11,094. According to
Mauricio Botero, former president of the stock exchange, the
volume of trading has grown significantly over the past five
years. In 2001, trading totaled between two and three
million dollars in volume per day compared with the 50 to 60
million-dollar per day averages in April 2006.

Monthly average index and value of shares traded

MONTH Index Value of Shares Traded (VST)
05 Jun 5563.57 776 mln
05 Jul 6240.39 823 mln
05 Aug 6708.01 2.1 bln
05 Sep 6918.76 1.6 bln
05 Oct 7195.11 535 mln
05 Nov 8600.61 7.9 bln
05 Dec 9513.25 19.0 bln
06 Jan 11094.93 15.4 bln
06 Feb 11080.24 6.9 bln
06 Mar 11094.64 3.7 bln
06 Apr 11076.22 1.7 bln
06 May 9045.16 2.7 bln

DATE Index VST Percent Change
06 01 Jun 9061 23 mln 0.177
06 02 Jun 9122 43 mln 0.672
06 05 Jun 9100 20 mln - 0.233
06 06 Jun 8821 27 mln - 3.070
06 07 Jun 8214 48 mln - 6.882
06 08 Jun 7435 35 mln - 9.478
06 09 Jun 7538 39 mln 1.383
06 12 Jun 6749 52 mln -10.463
(xchange rate: 2300 COP = 1 USD)

3. Well before the recent downturn, the executive director
of the Central Bank expressed concern that the U.S. Federal
Reserve's inflation targeting measures would eventually move
foreign investment capital away from emerging markets. This
appears to be happening across the Colombian economy, as
stocks, bonds, and the peso have all taken hits over the past
three months. Colombia's overall economic health is strong,
however. A steadily declining unemployment rate (16 percent
in January 06 falling to 12.7 percent in April 06),
consistently low inflation (near 4 percent) and a growing GDP
(around 5 percent) indicate the economy is still doing well.
Now we will have to see if the capital market turbulence is a
disruptive factor in the "real" economy.

4. Comment: The Colombian capital markets are thinly traded
and more volatile than larger markets. Moreover, price
earnings and capital value to equity ratios had climbed to
stratospheric levels in early 2006. A correction was almost
inevitable and rising U.S. interest rates with falling global
markets were the catalysts for revaluation of Colombian
equities.
DRUCKER

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