The Colombian stock market sinks due to the threat of a credit downgrade

The Colombian Stock Exchange (BVC), a channel as necessary as it is weak within the local financial system, has been chaining setbacks and falls in most indices for a week. A situation that could serve as a catalyst to shake the market out of lethargy or find solutions to boost trading volumes. The bad streak of recent days has its origin not only in local results and macro situations, a report from the New York bank JP Morgan has also weighed, in which it is concluded that the economic scenario in the South American country is “unattractive” and forecast “ “uncertain political.”

The size of the operations carried out during the day on Wednesday at the BVC, for example, reached 45,781 million pesos (about 11 million dollars). A sign that, contrary to the rhythm of 10 years ago, when transactions on a typical day could exceed 90,000 million pesos, perhaps it could be a state of early depression. The problem has worsened with the news that the American firm does not rule out the possibility of “reclassifying Colombia out of emerging markets.”

The above means that the country’s capital market could go from being considered “emerging” to “frontier” by the firm MCSI, the world leader in securities indices and the one who manages the MCSI Colcap, which as a whole values ​​the main shares of the Colombian stock market. The JP Morgan report indicates that the BVC is approaching the lowest MCSI classification, which is why it calls into question its credit rank, an issue that otherwise bothers more than one due to the risks it entails for the so-called “country confidence.” .

The New York bank document cites two factors. Evidence that the degradation “would cause an outflow of flows” and “less visibility” of the country in the circuits. But despite the undeniable concern, many market observers also relativize the dictates of a series of institutions that, in their task of preventing credit risks, precisely, failed scandalously and were greatly compromised during the global financial implosion of 2008 ( the largest since the crash of 1929).

In any case, the shares that have fallen the most during the last thirteen months are that of Banco Davivienda (-44.38%), followed by those of the Bogotá Telecommunications Company (-40.97%), and the Corporación Colombian Financial Institution (-40.35%). A chain of downturns that had not been seen since March 2020, when the worst health crisis in a century emerged in Colombia.

Among the most affected companies, among only 33 issuers listed on the BVC, Grupo Bolívar was the one that depreciated the most, reaching 51,400 pesos, a decline of 9.97% in a single day. It was followed by the Franco-Colombian giant of large stores Éxito, which fell 3.93% per share.

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The BVC closed on Wednesday with a drop of 0.43%, compared to Tuesday. And Tuesday’s decline was 2.45%. Felipe Gómez, portfolio manager of the London-based Ashmore in Colombia, affirms that the situation is delicate because the BVC is losing more and more strength as a viable instrument for “companies to finance themselves in Colombia.”

Felipe Gómez agrees, but also remembers that the international system has other rating agencies, and within the parameters and evaluation methodologies, Colombia maintains its credit rank without risks. “In the FTSE, for example, we are far from becoming a frontier market,” says Gómez. He also distances himself from the most pessimistic oracles because “when stocks go down, it is most likely that other investors will come to take advantage of the possibilities.”

Not in vain, the president of Asobolsa, Jaime Humberto López, recalled in statements to the newspaper La República that 33% of investments in shares in Colombia come from abroad. In the event of an untimely outflow of capital, from his point of view “the market could be appeased, there would be no stock market or market depth.” The Minister of Finance, Ricardo Bonilla, responded with a counterquestion when he was consulted on the subject: “Are you surprised?” In his opinion, the country has been aware for half a century that it does not have a capital market: “Only 120 companies have been on the stock market. And those with high marketability do not exceed 10”.

“The only thing they are saying,” Bonilla continued from Cartagena de Indias, “is that Colombia has a structural weakness and that the only thing that is traded in the country are fixed income papers.” A reading that María Soledad Mosquera, sector lead and director of BCR Ratings–S&P in Colombia, prefers to qualify: “The reactivation and deepening of the Colombian capital market becomes relevant for the entire context of economic growth.” In her opinion, it represents a fundamental source of diversification and financing for companies.

Beyond the reverberations of the report on the general economy, Camilo Zea, CEO of the financial company Pronus, highlights three factors that he classifies as “toxic” for an unlikely takeoff of the stock market. Namely: lack of facilities and spaces to issue debt; the reluctance generated in certain sectors by the “very important participation of some banks as owners of the stock market”; and, finally, some investor protection regulations that in his opinion take away the dynamism of the operation: “A sum of conditions that make the market very unattractive for clients and issuers interested in purchasing issues.”

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