The week began with the news that the Latin American market had been eagerly awaiting: the presidential runoff in Colombia. The winner was left-wing candidate Gustavo Petro, who secured a majority with 50.40% of the vote versus 47.2% for his rival, Rodolfo Hernández. We had to wait until Tuesday to see the market’s reaction to this negative news, and the consequences soon became apparent: the Colombian peso depreciated by 4.90%, reaching 4,000 pesos per dollar (a significant psychological barrier), 2031 sovereign bonds fell by 2 cents, and Ecopetrol’s 2031 bonds fell 3 cents, reaching an all-time low of 75.50 cents per dollar.

However, the market scare lasted only a couple of hours, because as Colombian risk assets hit attractive levels, we saw several market participants seize this as a buying opportunity once the news had been better digested, becoming convinced that Petro would have very little chance of pushing through many of his measures, let alone appoint a pro-market pro-market finance minister, and being more emphatic in his pre-runoff remarks to reassure the private sector.

As a result, the market has calmed down and the main fears that arose after Petro’s election have dissipated. For example, the corporate spread of Colombia’s CEMBI IG index has not shown any negative changes at the close since the news and the credit spread remains at 325 basis points, while the CEMBI HY Colombia index stands at 537 basis points. In terms of total return, the change has been nearly zero since Tuesday’s closing prices (both indices are up +0.1% as of the close of this report). It remains to be seen whether the market will continue to place this “confidence” in the new Colombian president in the coming days.

Adolfo Erpel

Money Table Team