Sunrise Over El Dorado : Alianza : February 6th 2019

DAILY THOUGHT : The soap opera at Hidroituango continues and whilst EPM successfully managed to close hatch 2 yesterday, at 85 tons no small task, the CEO of the Medellin company was hardly gushing in confidence, preferring a wait and see attitude. Additionally to the already ongoing investigations into the root causes of the disaster there will be another one as they did not advise ANLA, the environmental agency, that the closure was to be yesterday - the water flow will drop 20% over the coming three days - EPM have thus far employed 750 people to rescue 32,000 fish, one imagines there will be a few more to add to that number.........a mess.

The COLCAP had a very strong day on Tuesday, up another 1.25% to close at 1493.39 - that is above the 200 day SMAVG, the question now is whether that resistance level can be converted into a support level, if that happens there could be yet more upside. In local terms the market has now advanced 12.63% in 2019 which is ahead of even Brazil whilst in dollar terms the 17.97% increase is just marginally behind the large southern neighbour. We have written regularly on the causes especially the economy, valuations and AFP reform but overseas events are also crucial in this discussion - Colombia has a tendency to fare very well when the US rolls over and the Venezuelan situation whilst unpredictable short term could provide huge upside long term. Yesterday's volume totaled USD38mn with ECOPETROL (USD 8mn), PFBCOLOM (USD 6.43mn) and ICOLCAP (USD 6.4mn) enjoying busy days whilst in terms of performance PROMIGAS (+3.70%), PFCEMARGOS (+3.41%) and CORFICOL (+2.30%) fared well whilst CONCONCRETO (-4.93%) ,BVC (-0.69%) and PFGRUPOARGOS (-0.51%) have had better days. The PESO gave up some of the recent gains with an official close of 3109.99 representing a 0.73% decline - volume was robust at USD1.5bn.

The bond market was somewhat mixed with the short end 2020 rising 3.5bps to 4.955% however at the long end we hit yield not seen since May 208 as foreigner once again look for higher returns. The 2024 dropped 1.5bps to 5.995% whilst the 2032 was marginally lower at 6.986%.

The final export number for 2018 came in slightly light of expectations at USD3.4bn and was down (FOB terms) by 14.6% YoY driven by a 23.5% decline in combustibles/coal whilst the other two main areas agriculture ( +1.7%) & manufacturing (+0.8%) were marginally ahead - this USD600mn decline in the combustible sector which has been the main driver for 2018 as a whole once again highlights the risks of the over-reliance on just two products, oil and coal. When we look at tonnage the result is even worse with a 37.2% decline YoY for the month and in this instance it is coal which accounts for almost the total decline, in terms of oil there was a modest increase which tells us what we need to know about prices in December - agriculture and manufacturing were close to unchanged. A disappointing number to end the year and if the import data remains as strong as we have seen recently then expect to see a sizeable deficit when published.

The new millenial friendly CPI basket is upon us and as expected it threw most analysts off the scent - we were at consensus was at 0.70% (Alianza 0.74%) for the month and 3.26% (3.29%) for the 12 month period, clearly the actual numbers (0.60% & 3.15%) are considerably lower however is hard to calculate if there is a methodology impact. What is noteworthy on what are effectively non-comparable numbers is that food contributed heavily and whilst El Niño is finally starting to affect reservoir levels we may too be starting to see the impact on crops and livestock.