Petro’s Approval Ebbs Even as Colombia Economy Gains Steam

President Gustavo Petro’s approval slipped to 37% (down more than one point) while disapproval rose to 61% (up two points) in the LatAm Pulse survey by AtlasIntel for Bloomberg, even as Colombia recorded strong economic growth. The decline in popularity follows high-profile scandals involving the armed forces and Petro’s former finance minister, elevating political and governance risks that could temper investor sentiment toward Colombian assets and policy stability.

Analysis

Market structure: Political/legal shocks to President Petro (approval to 37%, disapproval 61%) raises risk premium for Colombia assets even as GDP prints remain strong. Expect capital flight into USD and commodities; exporters (oil, mining) gain relative pricing power while domestically focused banks, consumer-finance and infrastructure names face funding-cost headwinds and narrower margins over 1–3 months.

Risk assessment: Immediate (days) — elevated FX and sovereign spread volatility (USD/COP +3–7% possible on headlines; 5y CDS +50–150bps if scandals deepen). Short-term (weeks–months) — policy uncertainty may compress domestic credit and investment; long-term (6–24 months) depends on sustained approval trends that could trigger fiscal retrenchment or populist policy shifts. Tail risks: mass protests, military fallout, or ministerial criminal referrals that provoke rating-action or capital controls.

Trade implications: Priority is tactical risk mitigation: hedge FX and sovereign exposure, and trade volatility in Colombian equity ETF (ICOL) and major ADRs (ECOPETROL EC; Grupo Aval AVAL/Bancolombia CIB). Use short-dated options to buy protection while sizing directional positions for 2–6 week mean reversion or 3–12 month policy regimes.

Contrarian angles: Consensus assumes sustained ouster of investor confidence — but strong macro prints and commodity receipts can stabilize yields; a headline-driven 10–20% overshoot in sell-offs is plausible. On a >10% COP depreciation or 20% drop in ICOL, re-accumulate export-heavy names (EC) and graded long-risk if fiscal metrics remain intact.

Key Decisions for Investors

• Establish a tactical 2–3% short position in iShares MSCI Colombia ETF (ICOL) via margin or buy 1–3 month ATM puts sized to 2–3% NAV; target 15–25% drawdown, stop-loss at +10% from entry. Rationale: hedge FX/sovereign shock while scandals unfold over next 2–8 weeks.
• Buy USD/COP call options (or enter long USD/COP forwards) for a 3-month tenor sized 1–2% NAV with strike ~5% OTM to protect local equity/bond exposure; liquid hedge against a headline-driven COP move >5% in 1–4 weeks.
• Initiate a pairs trade: long ECOPETROL (EC) 2% NAV and short Grupo Aval (AVAL) or Bancolombia (CIB) 2% NAV — exporters likely outperform domestic banks if FX weakens and funding costs rise. Hold 3–12 months, trim on 20% relative move.
• If able to access credit derivatives, buy 5y Colombia sovereign CDS protection sized to offset 2–3% of local bond exposure (or alternatively buy 6–12 month deep-in/near-ATM puts on ICOL for credit-hedge). Close or scale back if CDS widens >100bps or political headlines abate within 60 days.