Colombia: Foreign funds bought COP 2.1 Tn of TES in Jun-14
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July 8, 2014 (www.investorideas.com newswire) According to the Ministry of Finance’s latest report on TES holders, the demand for TES TF by Institutional Investors increased in Jun-14. The market demand was tilted towards TES TF COP (COP 1.7 Tn). However, when only domestic investors are taken into account, the market demand was mostly focused on TES TF UVR (COP 1.3 Tn) in line with the recent increase of inflation expectations. This reflects the fact that most local investors were net sellers of TES TF COP, while foreign funds purchased COP 2.1 Tn of these securities (table 1).
Foreign capital funds were the main TES buyers in Jun-14 reaching a new record high share of 10.4% (prior: 9.4%). This was explained by net purchases of TES TF COP for COP 2.1 Tn, and net purchases of COP 104 Bn in TES TF UVR. The TES TF COP amount comes as a very positive surprise for us, as May-14’s lower than expected inflows compelled us to expect monthly purchases of roughly COP 1 Tn. It is likely that foreign investors took advantage of higher yields to increase their holdings, effectively setting a cap on local rates, as expected. Thus, local investors should be aware that lower rates could bring in less inflows while relatively high rates would imply a new opportunity for foreigners.
Pension Funds (PFs) purchases were reduced to COP 222.6 Bn in TES TF COP. This figure compares to COP 1.3 Tn in May-14. Likewise, there were net purchases of COP 118.9 Bn in TES TF UVR in Jun-14, down from the previous month (COP 413.6 Bn). Thus, total TES holdings by PFs reached COP 51.2 Tn in Jun-14.
Meanwhile, Credit Institutions (Commercial Banks, Finance Corporations and Commercial Finance Companies), reduced their TES TF COP holdings by COP 430 Bn during Jun-14. On the other hand, their TES TF UVR holdings went up by COP 706 Bn, making them the biggest buyers of this market segment.
Insurance companies registered net sales of COP 196.1 Bn in TES TF COP. Meanwhile, demand for TES TF UVR accelerated to COP 186 Bn, after net purchases of only COP 15 Bn the prior month.
Public Fiduciaries reduced their TES TF COP holdings (COP -36 Bn). However, they increased their TES TF UVR holdings by COP 150.6 Bn.
TES TF UVR demand stood at COP 1.3 Tn, reflecting expectations of an upward trend in inflation, as well as attractive valuation in terms of break-even inflation. We remain positive on the future performance of TES TF UVR Apr-19 despite the downside surprise from Jun-14 inflation figure, as the strong dynamism of the domestic demand and the expectation of a warmer climate should imply the continuity of the inflation upward trend in coming months.
In conclusion, the purchases from both foreign funds and PFs (in a lesser extent) explained most of the demand of TES TF COP in Jun-14. This allows us to foresee a limited depreciation of TES TF COP in the following weeks, as any loss of value would likely imply positioning opportunities for PFs and foreign funds (i.e. those agents with a longer investment horizon).
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