Sunrise Over El Dorado : Alianza : January 16th 2019

DAILY THOUGHT : Following on from the saga that was the Tax Reform (adjustment) it was widely expected due to comments from the Government last August that the next item in front of Congress would be Pension reform which promised to make for an interesting spectator sport however according to the Work Minister that will now not happen until 2020, amongst the reasons given was the need to study pension systems in other countries - badly needed so shame it has been delayed.

The streak is over - it was only a loss of 0.01% but down is down so after 9 positive sessions on the COLCAP it was into negative territory on Tuesday as we closed at 1393.09. Volume on the day totaled USD31mn which was well down on Monday although that sessions featured the sizeable cross in Grupo Sura. The most traded stocks yesterday were ECOPETROL (USD 6.5mn), PFBCOLOM (USD 4.7mn) and NUTRESA (USD 4mn) whilst in terms of movement the best performers were: CLH (+1.63%) ,PFDAVVNDA (+1.23%) and NUTRESA (+0.93%) whilst struggling were CONCONCRETO (-2.70%) ,MINEROS (-1.72%) and PROMIGAS (-1.49%). The Peso traded just over a billion dollars as it closed at 3141.028 effectively unchanged on the day even though the oil price was favourable.

Another quiet day on the bond market with few notable changes along the curve. The 2024 rose 2.9bps to 6.15% whilst the 2032 rose 2bps to 7.15%.

One of the challenges facing the Duque administration is to continue to drive the levels of informal labour downwards, there has been movement at least in the right direction according to the DANE in their November unmployment report. Whether you look at 23 cities (48.10%) or 13 cities (46.90%) we are now below the psychological 50% level on a 3 month moving average which until a few years ago was a millstone of embarrassment considering the riches that Colombia contains. The issue of course is that this leaves 5.8 million (23 cities) people working with no form of protection, no pension, no insurance etc and given the mass of options in Colombia in a relatively advanced financial system solutions need to be found. The sector that most frequently uses informal labour (in keeping with many countries) is commerce including hotels and restaurants where fully 2.4 million of informal workers are to be found.

The one area of doubt is the countryside - there may be decline in the cities but what is happening in the countryside, despite not being awash with restaurants and hotels it is doubtful the number is lower, agriculture and mining would be two potentially heavy informal employers outside of the main cities. Again as per most unemployment data in Colombia and Latam in general there are holes which need to be filled.

In terms of costs the housing market finished 2018 as it had spent most of it, in a benign state. Whilst FY CPI stood at 3.18% the costs of residential building increased only 2.49%, this contrasts with the situation in 2017 when construction costs (4.77%) rose faster than CPI of 4.09%. Looking at the breakdown of the MoM increase (0.09%) we find all three sectors under little apparent demand pressure - Materials +0.12% : Equipment +0.09% : Labour +0.02%. This is nothing new with Construction Licences as a leading indicator have offered only intermittent comfort even though mortgage data out of the banks has been more encouraging - 2018 as per 2017 a year to close the book on - roll on 2019.