Sunrise Over El Dorado : Alianza : November 29th 2018

DAILY THOUGHT : The authorities feared the worst and those supporting the protest marches yesterday arguably were even more nervous in case of further controversy however in the end the protests went off more or less without incident - one thing that struck me was the fact that there were protests against the tax reform despite the fact that the more needy have largely been excluded from extra taxes, clearly not reading their 'Sunrise' report !

The COLCAP bounced back slightly putting on 0.13% closing @ 1385.13pts. There was strong buying on the close as the market pre-auction was down 0.29% - total volume was USD35mn. The most traded stocks were ECOPETROL (USD 8mn), PFBCOLO (USD 6mn) and EXITO (USD 4.3mn) with the best performers being PFCEMARGOS (+3.42%) , CORFICOLF (+2.65%) and PFAVH (+2.58), to the downside were EXITO (-3.95%) , ECOPETROL (-0.8%) and HCOLSEL (-0.71%). The Peso continues to weaken and is getting up close to 3300 having touched 3293 at one point today before closing at 3271 a depreciation of 0.26% on the day - volume remains high at USD1.25bn.

The bond market had a very quiet day with the 2024 (6.43%) & 2032 (7.47%) maturities close to unchanged on the day - attention today will be on the tax reform after the proposal to lower overseas capital gains tax from 14-5%.

This tiny segment will be used for a brief update of the shenanigans of the tax reform debate :

The final version of the reform was published yesterday afternoon and despite having been diluted considerably it still runs to 82 pages and 113 articles - it is available to anyone who reads Spanish and especially anyone suffering insomnia. In the end the total target is between COP6.5-7.5bn - way below the reported COP14bn deficit and it still has to be debated on from today with a likely vote next week. One shock inclusion was the lowering of the capital gains tax for foreigners trading TES bonds from 14-5% - this appeared to be ruled out however with the VAT on the family basket now removed arguably it could be more digestible. One article removed since Monday was the COP700mms profits tax on financial institutions and in general whilst the aim is still to bring the corporation tax down to 30% by 2022 it is the wealthy who appear to be taking the brunt of the reform be it new bands of income tax, dividends or more wealth tax - as mentioned before despite the GINI coefficient that which suggests the wealthy can afford it a chance has been missed to create an environment whereby more people contribute. The last three weeks have been painful for the Govt and especially FinMin Carrasquilla who even found himself defending himself and clarifying that he will not resign.

UNEMPLOYMENT

With the usual caveat that collecting employment data in Latin America is a tough business and also against the backdrop that 5 million people disappeared during the recent census we had the latest unemployment data from the DANE for October. Looking at the headline figures we find Total Unemployment at 9.06% which is up YoY from the 8.56% registered in 2017, we find the same situation in the narrower 13 cities survey which came in at 10.23%, higher than both the 9.6% estimate and the 9.49% seen a year ago. If we left the data there we could easily just have a conversation about Consumer Confidence or concerns over the tax reform however that is to a disservice to the dynamics and demographics of the country....this requires a look at the nominal data, no more reliable it gives a feel for what is occurring. If we take at the country as a whole we find that the 9.06% equates to 2.3mn people looking for work, a year ago that number stood at 2.1mn and here is the rub, this a young population and the demand on work places is growing. According to the DANE the working population has grown by 0.62% (159,000) over the past year so that whilst this month saw the unemployment percentage rise we actually saw the highest number of people working (23.09mn) in the history of the country - it beats by '6' persons the reading a year ago. This is the challenge for the Government, the young population needs to be put to work and that is why reforms are needed for sectors such as agriculture that are both underdeveloped and labour intensive.

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