MNI China Daily Summary: Wednesday, February 19

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COLOMBIA: Deutsche Bank Retains Negative Bias On COP

COLOMBIA
BulletEM BulletEmerging Market News
  • Despite COP outperforming other EM currencies, Deutsche Bank remains sceptical of further appreciation and retains a negative bias on the currency. Fiscal pressures and internal developments continue to pose vulnerabilities for the peso, while DB expects BanRep’s hawkishness to fade with the arrival of the two new members.
    • With their arrival, a majority of Board members will have been appointed by President Petro, who has been very vocal criticising the central bank’s unwillingness to cut rates faster.
    • DB says that COP is now close to financial fair value. While its still-attractive carry profile could support an appealing investment idea in the case that carry makes a comeback, DB argues that current conditions don't guarantee stable benefits of holding COP. Meanwhile, positioning is stretched for local pension funds, highlighting the risks of an unwind.
    • In their view, a combination of fair valuation and stretched local positioning, even with a relatively calm external scenario, would no longer be supportive for carry given the worsening of the internal situation in Colombia.
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  • Despite COP outperforming other EM currencies, Deutsche Bank remains sceptical of further appreciation and retains a negative bias on the currency. Fiscal pressures and internal developments continue to pose vulnerabilities for the peso, while DB expects BanRep’s hawkishness to fade with the arrival of the two new members.
    • With their arrival, a majority of Board members will have been appointed by President Petro, who has been very vocal criticising the central bank’s unwillingness to cut rates faster.
    • DB says that COP is now close to financial fair value. While its still-attractive carry profile could support an appealing investment idea in the case that carry makes a comeback, DB argues that current conditions don't guarantee stable benefits of holding COP. Meanwhile, positioning is stretched for local pension funds, highlighting the risks of an unwind.
    • In their view, a combination of fair valuation and stretched local positioning, even with a relatively calm external scenario, would no longer be supportive for carry given the worsening of the internal situation in Colombia.