There was a time when the Global X FTSE Colombia 20 ETF (NYSEArca: GXG) was the toast of the Latin America ETF clique. These are not those days.
GXG, the oldest and largest of the three Colombia-specific ETFs, has fallen on hard times, though in a sign of just how badly single-country LatAm ETFs have performed this year, GXG’s 14.7% year-to-date loss makes it better than the iShares MSCI All Peru Capped ETF (NYSEArca: EPU) and the iShares MSCI Chile Capped ETF (NYSEArca: ECH). [Single-Country ETFs Slammed by Fed Talk]
In local currency terms, Colombian stocks are the fourth-worst performers in South America this year, acting less badly than their Peruvian, Brazilian and Chilean counterparts.
Things have gotten so dire for GXG and Colombian stocks that Wednesday’s gain of almost 1.1% on above-average volume was the ETF’s first winning day in 13. The woes are easy to explain. While the Colombian economy is larger than Peru’s (it is South America’s second-largest behind Brazil), the former is almost as intimately levered to the commodities trade as the latter. [This Chart Explains How Correlated Peru ETF is to Gold, Silver]
Colombia is a major copper and silver producer. It is also home to a burgeoning oil industry and is one of the largest coffee producers. Starbucks (NasdaqGM: SBUX) may be raising prices, but coffee futures are plunging. [Coffee ETN Could Continue to Taste Bitter]
GXG and rival Colombia ETFs have been hurt by materials and energy sector exposure. Those two sectors combine for 36.5% of GXG’s weight. Ecopetrol (NYSE: EC), Colombia’s state-run oil company, is GXG’s largest holding with a weight of 14.2% Once upon a time, Ecopetrol was a shining star among state-controlled oil companies, particularly when measured against Brazil’s Petrobrasd (NYSE: PBR).
That is not the case this year as Ecopetrol has lost 30.6%, a performance that is nearly twice as bad as Petrobras. Investors may be speculating that Ecopetrol could traverse a similar path as Petrobras, one of ambitious output increases met with equally audacious financial requirements. Last week, Ecopetrol said it will spend as much as $75 billion by 2020 to boost production to 1.3 million barrels per day.
That stoked speculation the company would need to sell debt or issue new shares and the speculation was intense that not only did it weigh on GXG, but Ecopetrol had to publicly address it on Wednesday.
“ Ecopetrol clarifies that its investment plan and budget for 2014 currently remain under preparation. Therefore, as of this date, Ecopetrol S.A. has not made any determination in connection with any financing thereunder. In particular, no determination has been made with regards to any equity or debt financing by accessing domestic or international capital markets next year,” the company said in a statement.
GXG trades nearly 5% below its 200-day moving average and is down 6.6% over the past 90 days, a time frame in which the iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is up 6.8%.
Global X FTSE Colombia 20 ETF
