JPMorgan On COP: Room To Outperform In Near Term, Pipeline Headwinds

JPMorgan On COP: Room To Outperform In The Near Term, But It Might Lose Steam As USD Treasury Sales Decelerate

• While COP had the worst performance in EM during H1, its comeback since then has been notable, especially when comparing it to other Latam Ccys.
• JPM think the main factor behind this has been the strong support from USD Treasury sales, with strong oil prices, a stable rating outlook from Moody's and continued TES bond inflows also contributing to COP's recent outperformance.
• The government sold USD 1.0bn and 2.2bn in August and September, respectively, which compares to an average of USD 350mm during the two previous months.
• They expect these dynamics to continue in the short term, potentially up until year-end, with the government still having a relevant amount of USD to monetize according to their fiscal plan and recent statements, and oil prices expected to remain strong.
• However, the environment might turn bleaker into next year, as USD sales slow-down, there seems to be some downside risk for oil and the elections add another layer of uncertainty in the context of a country with the largest forecasted twin deficit in EM.
• While it still seems too early for markets to start trading on the election theme, JPM think this will be key going into next year, particularly when looking at the impact of political processes in markets in other countries in the region.