Foreign investors pour $622.5M into Colombia’s bond market

Posted on Mar 13 2014 - 11:38am by Rico
(Photo: I Heart Budgets)

Colombia is bucking a global trend: Around the world, bond markets are struggling, but more than half a billion dollars has flowed into the Colombian bond market since the start of the year.

$622.5 million has been invested into Colombia’s bond market since the start of January, fund flow tracker EPFR Global told the Wall Street Journal on Tuesday.

According to Investopedia, a bond is simply a type of loan where investors lend a company or government money when they buy its bonds. In exchange, the company pays an interest “coupon” at predetermined intervals (usually annually) and returns the original amount on the maturity date, ending the loan.

Turmoil in Mexico, Argentina and Venezuela, combined with Colombia’s low inflation rates, have made it one of the more attractive destinations in Latin America.

Colombia’s bond market has lots of room to grow: just over 6% of Colombia’s local currency bonds are held by foreign investors, compared to with nearly 40% in Mexico and around 50% in Peru.

But it is not all good news.  Like most other emerging-market currencies, the Colombian peso has depreciated against the dollar, down 5.6% so far this year, as the Federal Reserve gradually winds down its stimulus program. That has reduced profits for foreign holders of Colombia’s local bonds.

Bonds, direct investment on the rise

Colombia’s bond market has lots of room to grow: just over 6% of Colombia’s local currency bonds are held by foreign investors, compared to with nearly 40% in Mexico and around 50% in Peru.

In addition to the bond market, foreign direct investment (FDI), entering Colombia hit a record US$16.8 billion in 2013, up 0.87% from last year, according to statistics released in January by the Bank of the Republic.

The report, published by international news agency Reuters on Friday, highlighted that financial authorities had expected a fall in figures as a result of the global economic crisis.

MORE: Foreign investment in Colombia up 2.4% in Q1 of 2013

According to Reuters, the petroleum, hydrocarbons and mining sector received the most investment – with an influx of US$13.7 billion, it amounted to an overwhelming 81.6% of total investment, up 2.9% compared to last year.

Portfolio investment reportedly also boosted up 43.7% in between 2012 and 2013, reaching US$4.7 billion, though these figures may be subject to revision.

In the meantime, Colombian investment abroad also increased 75.4% to hit US$2.4 billion, with the main destination being international portfolios.

Net international reserves were up in value by 16.4% at the end of last year, once again reaching record heights of US$43.6 billion.

Foreign investment in Colombia since 1994

MORE: Colombia FDI statistics

Sources

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