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3/3/10

Morgan Stanley on Colombia: The refreshing taste of financial honesty

On February 28th, Morgan Stanley came out with a new call on Colombia, which you can read pasted below (or download the single page PDF with a single piechart worth looking at here).


Colombia Strategy. Uribe denied re-election bid; Underweight Colombia

Investment conclusion: Political uncertainty in Colombia is rising and should limit short-term market performance. We reiterate our Underweight rating on Colombian equities and we will wait for an opportunity to buy the market when the local IGBC falls below 10,000 points (15% lower than the current 11,725-point level).

What's new: Colombia’s constitutional court ruled by 7-2 against conducting a referendum on allowing President Uribe to seek a third term in office. Recent polls suggest Mr. Uribe would secure almost 50% of the vote intentions in the May 2010 Presidential election. Hence, we believe the court’s decision leaves the country with a political overhang in the short term
(Exhibit 1)

What this means for the market: We think the political uncertainty – the top four Presidential candidates combined have only 38% of the vote intentions in recent polls – will weigh heavily on the equity market over the next two months. The IGBC has been the best performing local index in the region (up 7.2% in U.S. dollar terms) year-to-date and it is now due for a correction, in our view.

What’s next: On the political front, there are two near term events to watch:

1) The definition of the government’s new Presidential
candidate. Former Defense Minister Juan Manuel
Santos, from the “Unidad Nacional” party, seems to be
the strongest contender; and

2) Congressional elections scheduled for March 14.

The above shows the difference between the entangled web of lies known as politics and the refreshing honesty of the world capital markets. Or put more simply money talks, bullshit walks. While political analysts wring their hands over the loss of Uribe as President and have been trying to wrestle with the whole "3rd term not good for democracy in Colombia" compared to their gut feeling 'Uribe good' malarkey for months on end, the financial sphere just cuts to the chase. Morgan Stanley (and nearly everyone else out there in moneyland) would much prefer Uribe to play the dictator card, stay in power, screw over democratic niceties and KY Jelly the country's constitution yet again because it'd be good for their bottom lines.

That's how it is, like it or not,Oppenheimer. The USA likes a "good" LatAm dictator installed for decades on end. It's only when a "bad" dictator like Chávez turns up on the scene that cries and squeals for democratic process drown out the sound of the cash till. Morgan Stanley has that crystal clear when it calls the decision against Uribe running again as bad for biz. I applaud MS for telling it like it is and laugh out loud at hypocritical western media.