This landmark visit could herald a wealth of new opportunities for UK investors. Both countries have been strengthening strategic ties in the wake of Colombia’s ground-breaking energy reform, which after 75 years under state management is now opening the sector to private investors.
Lazard portfolio analyst and fund manager Paul Rogers is mindful of these policy developments, as part of the group's Latin American equity team and co-manager on the Emerging Markets Core Equity Fund that launched last year.
“There is no clear trend in the market place. While from 2001 to 2007 value outperformed, from 2009 to 2013 growth outperformed. Since the crisis, we have been trading sideways, and going forward expect to see a similar situation with few fluctuations,” Rogers said.
Emerging Markets Core Equity Fund is currently overweight in Colombia and Mexico, where the team whittled down 2,600 stocks to 80 and tend to invest in companies not restricted by state influence.
For example, Rogers preferred to select a small independent Colombian company in the oil and gas exploration sector over Brazilian Petrobras, the state-controlled giant with extensive resources and long-term favourite of many of his peers.
“We believe our stock choice in Colombia will have a better and earlier advantage in the gas market than Petrobras, a company we have no stock in,” he said.
The case for Colombia
The investment opportunities in Latin America vary dramatically by country. ‘Bad boys’ Argentina and Venezuela may be extremely resource-rich but their oil and gas sectors are subject to heavy government intervention.
“Colombia has given considerable autonomy to its national oil company, Ecopetrol, which is run along commercial lines. The government benefits by receiving dividends, like a shareholder, and exercises less political control. It’s an example of how you can combine state control with efficient management,” according to Jan Dehn, head of research at Ashmore Investment Management.
By contrast, Petrobras may have a similar company structure as its Colombian counterpart but it is vulnerable to the ideological predilections of the Brazilian government. In an effort to keep interest rates low and avoid inflation, the government has banned Petrobras from raising its prices, but with rising costs and squeezed profit margins, dividends have been drying up and the stock is looking increasingly unattractive to buyers, he said.
“Few believe that there will be a material change in the way the government treats Petrobras,” Dehn added.
Brazil’s clout
Despite political uncertainties in the energy, Brazil will continue to dominate the continent by size.
“We will always have a significant amount of investment in Brazil. It’s the cheapest and most liquid market,” according to Will Landers, fund manager of BlackRock's £157.24m Latin American Investment Trust.
He holds 59.7% of total assets in Brazil while 29.9% is positioned in Mexico, his second largest country weighting. Colombia is fourth, making up 1.5% of the trust's assets.
“One thing we are keeping an eye on is Brazil’s presidential election in October. We’re not expecting major changes leading up to the election but we will be watching how market-friendly the new government is. We’ve seen some government intervention in certain sectors the past years, so this will be key to performance going into 2015,” he added.
Dean Newman, head of emerging market equities at Invesco Perpetual, is positive that domestic demand conditions in Brazil remain resilient, supported by growth in real wages and strong job creation.
“A lower exchange rate has brought benefit to Brazil’s trade balance, which has improved significantly lately. While this is a positive development, it is also important to highlight that Brazil is not reliant on exports for sustainable growth. The country, home to over 190m people, has a large domestic economy,” he said.
