Weak oil prices send Colombian stocks spiraling

Colombian stocks are seeing six-year lows as the country´s economy has been hurt by weaker oil prices and slower economic growth, but there could be investing opportunities, Javier Gomez, chief of economic research at the Colombia-based brokerage and consulting company Serfinco, said.

“The Colombian economy is expected to have weak growth during 2015, when we anticipate a gross domestic product expansion of 3.1 percent after 4.6 percent in 2014,” Gomez recently told Latin Business Daily by email.

 This growth, however, will be better than that in most other countries in the region. Like Colombia, its neighbors are also feeling the impact of weaker commodity prices.

“In the case of Colombia, the biggest impact is due to the contraction of oil prices in international markets,” Gomez said.

About 7 percent of the Colombian economy depends on oil- and gas-related activities. 

“Even if it does not seem like too much, the external and fiscal accounts are heavily dependent on crude prices,” Gomez said. 

As of 2014, about 75 percent of the country´s exports are commodities, and more than half of those exports are crude oil shipments, he added.

“Besides, foreign direct investment is about 30 percent related to hydrocarbons,”  Gomez said. 

Government revenues are 20 percent derived from oil, be it from taxes and other revenue from the industry as well as in the form of dividends earned from state oil company Ecopetrol.

The country, like others in the region, also is seeing a strong depreciation of the local currency. That weakening  also is related to lower oil prices hurting exports. The U.S. dollar, meantime, is going higher as the U.S. economy is recovering.

As for the local exchange, “the main index of shares in the local market has hit its lowest levels in the last six year,” Gomez said.

The exit of capital “from emerging economies to those developed, and the impact of oil prices and the local currency depreciation all cast a shadow on the perspectives of local issuers,” he said.

This is why Serfinco anticipates a negative scenario for the oil-related shares as long as oil prices remain weak. In industries related to electricity generation, Serfinco has a “neutral” with a negative outlook view as prices and climate concerns do not favor the industry, he said.

“The industries in which we have better perspectives are the financial (related), where despite a slower economic growth compared with the start of the year the financing of concessions of infrastructural projects will pull the industry´s development,” Gomez said. 

Construction also could see a more positive scenario in the long term, he added.

Companies related to consumption will be very dependent on the country´s economic development in coming months, Gomez said.