Colombia Gets Ratings Upgrade, ETFs Yawn

ETF Trends

Fitch Ratings upgraded its long-term foreign issuer default rating on Colombia, South America’s second-largest economy, to BBB from BBB-. The ratings agency also made the same move on Colombia’s senior unsecured foreign bonds.

Exchange traded funds tracking Colombia, which have been slumping this year, are not getting much of a lift on the news. The largest of the group, the Global X FTSE Colombia 20 ETF (GXG) , is trading slightly higher today, but the Market Vectors Colombia ETF (COLX) and the iShares MSCI Colombia Capped ETF (ICOL) have not traded. [10 Worst Global Markets Ranked by ETFs]

Fitch lowered its outlook on Colombia’s sovereign rating to stable from positive.

“The upgrade is underpinned by Colombia’s improvement in its external accounts and positive government debt dynamics, which support the convergence of external and fiscal credit metrics with rating peers. In addition, the sovereign’s credible and consistent policies provide it with the capacity to withstand external shocks; this was demonstrated during the recent increase in financial volatility witnessed by several emerging markets. Colombia’s medium-term growth prospects remain favorable compared with several of its rating peers and should be supportive of fiscal performance,” according to a Fitch statement.

Colombia’s debt-to-GDP ratio of 37.1% is impressive, particularly when measured against developed markets and peer emerging markets.

“Growth remains below potential and could reach 3.8% in 2013. Nevertheless, Colombia’s five-year average growth performance remains comfortably above BBB-rated sovereigns. Fitch expects growth to pick up over the forecast period in line with the recovery in external and domestic demand. The timely and efficient implementation of the country’s infrastructure program could further lift growth performance and improve overall competitiveness,” said Fitch.

It is that slowing growth that has hampered Colombia ETFs this year. Overall, sentiment toward Latin America ETFs has been dour as the top-performing single-country fund of the group is the Global X FTSE Argentina 20 ETF (ARGT) , the only LatAm country-specific ETF to rise this year. [Inexpensive Global Markets Delivered This Year]

Colombian stocks have fallen out of favor with investors to the point that GXG experienced a 12-day losing streak earlier this year.

Despite the price retrenchment, Colombia, like several other faltering LatAm equity markets, is still pricy on valuation. Using the CAPE methodology, a variation of the traditional price/earnings ratio, Colombian stocks are more expensive than their Brazilian and Mexican peers. [Pricey Global Markets Lagged This Year]

Global X FTSE Colombia 20 ETF

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ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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