Independent central banks and relatively few populist policies by governments have meant that inflation has been successfully brought under control, in contrast to nearby Brazil and Argentina.
Strong economic growth has greatly improved government finances in both countries, enabling them to embark on ambitious and much-needed infrastructure investments. Given these are emerging market countries, red tape will hold up some projects, but such is the volume of these plans that they should underpin growth for the rest of the decade. The creation of the Pacific Alliance, along with Chile and Mexico, will reduce trade barriers, enabling better integration into the global economy. A successful conclusion to peace talks with the FARC (Revolutionary Armed Forces of Colombia) guerrillas would further reduce security concerns that have blighted Colombia’s recent past and prompt an additional catalyst for investment in the country.
Andean neighbour Chile is often held up as the success story in the region and the policies of Colombia and Peru are aimed at replicating this success. With per capita gross domestic product (GDP) approximately less than half that of Chile, the potential of Colombia and Peru is clear to see. Encouragingly for investors, the capital markets in both countries are exhibiting improving liquidity and corporate governance. The first place to look would be the financial and consumer sectors, where low penetration of financial products and formal retail alongside rising income levels point to significant growth potential over the long term.
Nicholas Cowley, Investment Manager, Global Emerging Market Equities
These are fund manager views at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.
