Sunrise Over El Dorado : Alianza : February 5th 2019

DAILY THOUGHT : The press are chatting about a BNP report suggesting that the Venezuelan refugee situation might add as much as 0.3% to GDP whilst the authorities are saying 0.5% - this will surely mitigate some of the 'crisis' the Government and especially if the US is about to start handing out aid locally as part of their support for Juan Guaido. The question is this - the latest unemployment data revealed 300,000 new job seekers from over the border, if they take 300,000 jobs previously held by Colombian's how is that helping especially if they are happy receiving less salary and at what point do we get a Brexit effect of resentment amongst the host population ?

The COLCAP had another good day (+0.88%) closing at 1474.94pts, most of this gain came in the closing auction - total volume on the day totaled USD44mn. The most traded stocks was ISA (USD 9mn) the day after EPM confirmed the sale of their 10% stake. The best performers were BOGOTA (+4.45%), GRUPOAVAL (+3.23%) and CORFICOL (USD 2.86%) whilst in Medellin PFCEMARGOS (-2.03%) ,EXITO (-1.68%) and GRUPOARGOS (-1.08%) all fell. Another positive day for the market and we are now at base camp to attack the 200 day SMAVG, an event a few weeks ago that looked as likely as myself making base camp on Everest . We have called for a multi-year bull market and we published our guide yesterday (either check inbox or ask again) to the AFP reform locally which will come into force next month. Additionally having fully broken the 1420 resistance level in our weekly strategy report we are back to a BUY on the COLCAP although this will require a little better price action from the laggards.

The PESO looked set to give up some of its recent gains as it was weaker most of the day however in the end there was another gain of 0.07% to close at 3088.02. Owing to the comments of Powell in the US last week we foresee a Peso continuing to strengthen to 3000 or even perhaps below, there is a temptation to buy dollars but historically that has been a bad idea during the first half of the year.

The bond market continues to strengthen with falls along the curve - the benchmark 2024 was 2bps lower at 6.01% whilst at the long end the 2032 dropped 3.5bps to 6.99%.

We remain neutral on the bond market although the 2024 continues to move towards a floor of 5.95%.

In a lengthy article over the weekend the man charged with organizing the finances of the 4G projects expressed his growing optimism about the financing situation and is assuming we will have 6 financial closures to take us to 20 by the end of the year with the strong possibility that it could rise to 22. Clemente del Valle of the FDN sees interest continuing to grow especially from overseas agencies although he is concerned if there are any changes to the infrastructure laws as they could cause uncertainty - another area of importance to Clemente is the local banks who owing to the various scandals locally have predictably pulled in their horns, at the end of the first year in 2016 they held 47% of the portfolio but that dropped to 36% by the end of 2018. Clemente wants to increase that although logically as the portfolio of projects grows they may struggle to find the resources to continue investing. Overall, whilst behind schedule as an overall program the 4G projects are arguably well ahead of where most doom mongers said they would be a few years ago, there have been issues of course, this is after all the first time such an investment has been attempted but already there is tarmac to be seen in some parts of the country and in others millions of tons of earth have been moved in preparation. The frustration of investors parked in local construction related names is understandable but the wait is nearly over and that frustration is nothing next to those awaiting those highways to improve both business connectibility between the interior and the coast as well as the capacity to get around Colombia in general.

This afternoon we will have our first look at the fresh out of the box shrink wrapped inflation methodology, updated for the first time we are moving from 9-12 categories with more emphasis on areas such as eating out as well as more emphasis on millennial favourites information and technology. Additionally alcohol has been split off from food and there is a separate category for furniture. This will all serve to complicate the estimates for January however we are looking for 0.74% (0.70% consensus) for the month and 3.29% (3.26%) for the full year number.