As has been well-documented, Latin America exchange traded funds are enduring another year of dreadful performances at the hands of slumping commodities prices. Down more than 35% year-to-date, the Global X FTSE Colombia 20 ETF (NYSEArca: GXG) is no exception to that theme.
It is not surprising Colombian stocks and GXG have struggled this year. The American nation is a major producer of silver, copper and, to a lesser extent, gold. But to top it all off, Colombia is being punished by faltering oil prices as well.
In recent years, Colombia’s production growth turned it into South America’s third-largest oil producer behind Brazil and OPEC member Venezuela. However, some of Colombia’s headline-making oil finds have not been as lucrative as previously hoped. Add to that, Colombia is not an OPEC member like Venezuela, nor does it produce nearly as much as Mexico or Brazil, but even with that in mind, it cannot be ignored that GXG is highly correlated to oil prices. [Oil Crushed These Country ETFs]
GXG has a correlation coefficient of 0.59 to the United States Oil Fund (NYSEArca: USO), according to Seeking Alpha. The only single-country ETF with a higher correlation to USO is the iShares MSCI Canada ETF (NYSEArca: EWC).
In fact, GXG’s correlation to USO is higher than that of the ETFs tracking stocks in Nigeria, Qatar and the United Arab Emirates. Those are the only single-country ETFs on the market following stocks in OPEC member countries.
According to JPMorgan Asset management, Colombia and Mexico are now members of the so-called fragile five group of emerging markets. The two Latin American countries, along with Turkey, South Africa and Indonesia, are seen as developing countries overdependent on volatile foreign investment flows. The original fragile five were among the worst off during the taper tantrum of 2013 when foreign investors pulled out of the emerging markets. In the event of another taper tantrum event, Colombia and Mexico may be among the most exposed to a shift to safety. [Fragile Five Expands]
Additionally, Colombia’s peso currency has depreciated 36% against the U.S. dollar over the past 12 months and there are no currency hedged Colombia ETFs on the market.
Global X FTSE Colombia 20 ETF
