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 and Ecopetrol lacks the offshore heft to compete with other major global integrated oil companies.
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That underscores the point that investors in GXG are making an indirect bet on oil prices rebounding further.
“We reiterate our underweight stance on Colombian equities in our Latin American Model Portfolio despite attractive headline valuations. We have two main reasons for our negative view: 1) little near-term upside left for oil and 2) political uncertainty that should delay earnings recovery due to lower domestic confidence and increasing fiscal concerns,” adds Morgan Stanley in the note posted by Barron’s.
For more information on the developing economies, visit our emerging markets category.
Global X MSCI Colombia 20 ETF (NYSEArca: GXG)