Colombia’s economy is finally starting to rebound after a streak of sluggish growth, and Ashmore’s head of research Jan Dehn thinks political and macroeconomic conditions are just right for this cyclical upswing to continue.
Lower oil prices, as well as political uncertainty linked to the peace agreement with the FARC rebels and the upcoming presidential elections, had thrown the Colombian economy into a long slump. The economy has started to turn around and should continue to be supported by several developments, according to a note by Dehn released March 21.
‘The improving growth outlook in Europe and emerging markets should ensure that global GDP growth rises as well, which in turn provides support for oil prices, which still matters a great deal at the margin to the performance of the Colombian economy,’ Dehn wrote.
Moreover, Colombian voters look set to elect Iván Duque, a center-right, business-friendly candidate, as their next president, which is ‘is likely to unleash a great deal of pent-up investment,’ Dehn wrote.
However, he cautioned against the possibility that Duque might undo the peace agreement with the FARC rebel group.
‘Foreign investors will likely react badly, because they will see a dissolution of the peace accord as a regressive move, motivated more by personal grievances rather than the national interest,’ Dehn wrote.
Turning to China, Dehn said that foreign buyers have increased their holdings in Chinese government bonds at the fastest rate since September 2016 and that President Xi Jinping’s recently increased political power would have direct implications for investors.
‘President Xi Jinping will use his new powers to speed up economic reform in China,’ Dehn wrote.
‘One of the obstacles to China’s further integration into global financial markets, including entry to the main global and emerging market bond market indices, has been the confusing state of the Chinese regulatory system, where multiple agencies have often had overlapping and, sometimes, contradictory rules. This situation may now begin to improve,’ he added.