Assets in Colombia suffered a bullish rally after Rodolfo Hernandez went to the second round of the presidential elections and faced the extreme left candidate, Gustavo Petro.
The Colombian peso rallied almost 4% due to Hernandez’s victory, after having suffered an almost constant but slow devaluation during the last months, due to the uncertainty generated by Gustavo Petro’s proposals.
Because of the election results, the cost of protecting Colombia’s external debt for the next five years decreased. Meanwhile, financial markets rose 3.8 % on Tuesday.
“For the market and according to the polls Fico [Federico Gutiérrez] passed, but Fico wouldn’t beat Petro in the second round,” explains Sebastián Toro, director of the financial academy, Arena Alfa. “When Rodolfo [Hernández] passed, there was a surprise and the tables were turned.”
Colombian pollsters give the probable winner of the electoral race to Rodolfo Hernández, who will probably count on a considerable percentage of votes from the Gutiérrez campaign. It is estimated that between 49.5% and 52% of the votes would go to him in the second round.
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“When this scenario, which was not expected, was opened, the market liked it very much and for the market a victory of Rodolfo is very positive, since he doesn’t have any dangerous proposal for the economy, and he is a pro-market businessman”, explains Toro.
Colombian asset prices suffer from political uncertainty
Among the Colombian assets that rose in value was the Colombian oil company Ecopetrol, a joint venture responsible for an important part of the national oil production. The share price of the state-owned oil company rose by 8.8 % during Tuesday’s trading.
However, Petro’s proposal on curbing oil exports and exploration has filled the future with the oil industry in the country with uncertainty.
“The financial indicators in the world are such that neither the Colombian stock market nor the Colombian peso are so cheap, because oil is high, Colombia is receiving a boom in exports due to the war in Ukraine, and also despite the increase in interest rates in the United States, Colombian bonds are yielding positively”, explains Juan Pablo Figueroa, financial analyst.
“Why are Colombian assets cheap? Because there is a political risk manifested in a candidate [Gustavo Petro]. When the probabilities of the political risk being executed are reduced, the fundamentals stabilize, they will not stabilize overnight, but the stock market will go up, and the dollar will go down… It’s not that Rodolfo is a genius in economic theory, but this political risk of mega reformism will not be executed,” comments Figueroa.
Although Hernández’s proposal may seem somewhat similar to Petro’s, his outsider status means that he does not have a political party in Congress, so any reform proposal will have to be agreed with both political spectrums if it is to be approved.
Last year, Colombia achieved 10.6% growth in 2021, placing it among the fastest growing post-pandemic countries in the world. Although the growth of the Colombian economy has maintained its momentum, political uncertainty has not allowed this growth to be reflected in the value of the country’s assets.