Colombia The Hard Part Starts Now

Deutsche Bank suggests the market is overly optimistic about the Colombian administration's ability to correct fiscal imbalances. Consequently, they maintain a neutral stance on the Colombian Peso (COP) and favor relative value trades.

Key Takeaways

• 1.Market optimism regarding the new administration's fiscal impact on Colombia is likely overstated.
• 2.The fiscal consolidation requirement is substantial (3-4pp of GDP), and the path to achieving this remains unclear due to campaign promises and congressional constraints.
• 3.The outlook for COP is neutral with expected underperformance versus BRL, despite recent gains.

Table of Contents

• The fiscal challenge is arguably larger than markets currently appreciate.
• COP valuations start to screen expensive.
• COil optimism may be overdone
• While BanRep is expected to resume hikes, the bar for meeting market expectations is high.
• Appendix 1

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