(MENAFN- Gulf Times) Foreign firms are returning to Colombia's local bond market after cutting their investments last year, lured by robust economic growth in an otherwise sluggish Latin America.
Investors from abroad added more than $400mn in peso-denominated debt, known as TES, in January, the biggest increase in six months, according to the Finance Ministry. The marked rebound from 2019 has helped push government borrowing costs to their lowest levels in seven years.
Bond buyers are finding value in Colombia amid forecasts for consumer spending and business investment to boost growth this year to a full percentage point above the Latin America average. They're also seeking out a stable political and economic environment, taking shelter from civic unrest in the Andes and a debt crisis in Argentina that's seen holders forced to accept payment delays and heavy losses on their investments.
'Growth above 3% compared to all our peers is a significant expansion, and that restored optimism for foreign investors, said Andres Aristizabal, a trader at Scotiabank Colpatria SA in Bogota. The situation in other countries such as Argentina, Chile or Brazil is not resolved and Colombia is still a good opportunity.
Colombia has worked for years to coax more foreigners to the market with tax breaks on bond holdings, all the while working to shore up its fiscal situation to maintain its investment-grade credit ratings. Gross domestic product is forecast to climb 3.2% this year, compared with 1.9% for Latin America as a whole, according to data compiled by Bloomberg.
The government cut withholding tax for investors in TES to 5% last year from 14% previously and as high as 33% in 2012. Foreign holdings have shot up since then, to about 25% last month from 3.7% before the tax cuts began.
The reduction in levies made 'its debt more attractive for foreign investors and, in the end, gave Colombia access to cheaper funding, said Pramol Dhawan, head of emerging-market portfolio management at Pacific Investment Management Co, which increased its holdings in Colombia last year.
'We continue to be constructive on Colombia, he said. 'We believe in the government's commitment and ability to stick to its fiscal targets and to avoid a ratings downgrade.
Optimism might be getting another boost from the outlook for the peso. After it lost 3.3% against the dollar this year, analysts now forecast a rebound of about 2.3% by the end of March, according to projections compiled by Bloomberg.
This month's rally has pushed yields on the 10-year TES bonds to the lowest since 2013. The country's peso-denominated notes have returned 2.5% in the past six months in dollar terms, slightly below the emerging-market average but a whole lot better than the 14% losses in Chile's debt or 48% plunge for Argentina.
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