Emerging markets stocks and exchange traded funds notched another year of disappointment in 2015 and nowhere was that disappointment more pronounced than in Latin America. Latin America exchange traded funds dithered through another year of dreadful performances at the hands of slumping commodities prices.
For all the wrong reasons, the Global X FTSE Colombia 20 ETF (NYSEArca: GXG) was a standout among single-country Latin America ETFs last year. A standout because the performance of Colombian stocks in 2015 was unusually poor.
Colombia, South America’s second-largest economy, 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. Those factors and others have made GXG one of the worst-performing non-leveraged ETFs of any type this year.
It was just a few years ago when Colombia was one of the brightest emerging markets stars, but slumping commodities prices have dimmed that light. Last year, Colombia’s central bank had to hike interest rates to cool inflation. Two years ago, Fitch Ratings upgraded its long-term foreign issuer default rating on Colombia, South America’s second-largest economy, to BBB from BBB-.
“Major catalysts to the economic struggle in the Latin American region include the current economic struggle in China and the decline in commodity prices. China has strategically resorted to domestic consumption in order to spark economic growth. This is not good news for a region that heavily consumes Chinese exports,” according to a Seeking Alpha analysis of GXG.
The largest Colombia ETF slumped nearly 42% last year and inflation there is on the rise, forcing the country’s central bank to boost interest rates.
According to JPMorgan Asset management, Colombia and Mexico are now members of the so-called fragile five group of emerging markets, edging out Brazil and India, reports Steven Johnson for the Financial Times.
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.
Global X FTSE Colombia 20 ETF
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.