Colombian markets greet new president with caution amid economic challenges

Colombian markets and economic sectors met the election of far-right president Abelardo de la Espriella with caution, anticipating major challenges ahead of his August 7th inauguration.

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The entry of investors lowers the exchange rate due to supply and demand dynamics but there is not much more room for peso appreciation because the country is entering a period of expectation about how it will solve its problems.

The currency market saw the dollar continue its recent decline, opening at 3,389.50 pesos, down 2% from Friday's close. Munir Jalil, chief economist at BTG Pactual for the Andean Region, noted that market volatility stems from both domestic issues and the external context, particularly the US-Iran conflict. "The entry of investors lowers the exchange rate due to supply and demand dynamics, but there is not much more room for peso appreciation because the country is entering a period of expectation about how it will solve its problems," Jalil explained.

The stock market also showed signs of unease, with the MSCI Colcap index opening down 2.6% at 2,437 points. This was largely driven by a 10% drop in shares of the state oil company Ecopetrol, a sector paradoxically expected to benefit from De la Espriella's government. De la Espriella, representing the Defensores de la Patria movement, secured victory with 12.9 million votes (49.66%), narrowly defeating Iván Cepeda of the Pacto Histórico party, who received 12.7 million votes (48.70%).

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Colombia's elections are part of a larger wave (in Latin America) of more market-friendly presidents and administrations.

Analysts observed that De la Espriella's victory margin was smaller than anticipated, with a difference of only 0.96 percentage points, contrary to polls that predicted a wider gap. Daniel Guardiola, executive director of Equity Research at BTG Pactual Colombia, commented that "Colombia's elections are part of a larger wave (in Latin America) of more market-friendly presidents and administrations." He highlighted the significant fiscal, inflationary, growth, energy, health, and security crises that the new president will inherit. "The truth is that he will inherit a country with multiple crises, and the bad news is that solving them requires money," Guardiola added. Jalil emphasized the need for the new president to incentivize investment to push Colombian economic growth back above 3%, as it has stagnated around 2.5% post-pandemic.

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The truth is that he will inherit a country with multiple crises, and the bad news is that solving them requires money.