The Next Event-Driven Macro Bet: Colombia; Stacking Edges and Grupo AVAL
May LatAm Report: The Colombian Edition
Every corner of the world has its own “isms”. Think about Eurasianism, Legalism, and Liberalism, popular in Russia, China, and the US, respectively. But the “isms” phenomenon is not limited to the present-day Great Powers.
For example, in Latin America, political philosophies mutated into local “isms” with a LatAm twist. Due to historical and structural factors, populism, in its left- and right-wing versions, has deep roots in the region, and nearly every long-serving head of state has built their own populist ideology. Prominent examples are Lulism, Chavism, and Peronism, named after their architects.
Until recently, the so-called pink tide with its left-wing “isms” overshadowed the political landscape in Latin America. Then the tide has turned with Javier Milei’s surprising win in Argentina in 2023. Next to turn to the right were Bolivia, Ecuador, Panama, and Chile. This year, three Latin American countries – Peru, Colombia, and Brazil – will hold elections that could tilt the political pendulum further to the right.
Here is how the LatAm political map (via Latin America Risk Report and Boz) is looking today:
The political change is impressive; in about four years, nearly a third of the continent moved to the right. That shift, along with accommodating market conditions, has sparked a massive rally in Latin American capital markets. I guess a scenario in which Argentina’s sovereign debt traded close to 75 cents on the dollar wasn’t on most market participants’ bingo cards back then. In general, the shift to right-wing “isms” has fueled a widespread bullish mood in LatAm markets.
The question is which country will be the next to move to the right.
Welcome to May LatAm intel, the Colombian edition. Today, I discuss Colombia as the next event-driven macro bet and demonstrate what stacking edges means in practice with Grupo AVAL.
The Next Event-Driven Macro Bet: Colombia
I love event-driven macro, and presidential elections are among my favorite catalysts to exploit. This month, Colombia offers such an opportunity: the presidential elections on May 31.
At first glance, the polls favor the left-wing candidate, Ivan Cepeda. This is based on recent surveys conducted by Invamer, AtlasIntel, and CNC. For reference, the chart (via AS/COA) below:
As you can see, Ivan has a massive advantage over the right-wing contenders, Abelardo de la Espriella and Paloma Valencia.
It’s time for a lyrical detour. LatAm politics are crazy, and in many ways, they are reminiscent of Bulgarian politics. As in Latin America, in Bulgaria, surreal acts during political campaigns are not the exception but the rule. Different countries, same vibes. Just look at that masterpiece where Abelardo de la Espriella performs along with AI-generated dancing tigers:
Video source: X/Crazy Ass Moments in LatAm Politics
And one more thing that subtly connects Colombian politics and Bulgaria. The leading left-wing candidate, Ivan Cepeda, studied philosophy in Sofia during the 80s. At the time, Bulgaria was probably the USSR's most loyal satellite. Candidly, I am not proud of this, but it is what it is. Apparently, Cepeda lived and studied in a wonderland of left-wing “isms.”
To give credit where credit is due: Thanks to Ian Bezek for sharing this curious fact about Cepeda in his great piece on Colombia.
Now back on polls.
Cepeda for now leads, but the question is whether his advantage is sufficient to escape a ballot. Realistically, a runoff scenario is highly likely, and the expected outcomes favor the right-wing candidates. For reference, the chart (via AS/COA) below:
According to the chart, Cepeda fails in the three run-off scenarios. The thing is, the best-performing right-wing candidate is expected to capture his peers’ votes in the run-off.
There is one more data point that suggests promising odds for Esprrella and Valencia. Check the following chart (via AS/COA):
The duo Cepeda/Quilcué is the undisputed leader in the anti-vote competition. Essentially, the anti-vote stats indicate that Cepeda’s position is not as solid as the voter-intention polls suggest.
The right represented by Espriella and Valencia has a slight advantage, judging by the anti-vote polls and the run-off scenarios. Of course, this is Latin America, and implying certainties to domestic politics is a fool’s errand. At best, I can assume the probability of a right-wing winner is higher than that of a left-wing winner. Basically, I have an implied probabilistic edge. However, I cannot measure it, and frankly, there is no need to. What matters is the edge itself, not its scale.
Now, let’s see what the market thinks about my presumed edge.
The basket of Colombian equities, as represented by the Global X MSCI Colombia ETF (NYSE: COLO), broke out from a long-term consolidation in 2025. Currently, COLO is above the 12-MMA, suggesting the emerging bull trend is intact.
COLO’s relative strength is still more relative than strong, as seen on the chart below:
The COLO/SPY ratio is stuck in a long-term consolidation. Of course, COLO is not the only variable in the formula. The recent SPY bull run overtook COLO’s mediocre YTD performance. For reference, the chart below:
Colombian equities face two constraints: rising yields (CO10Y) and a relatively indifferent Colombian Peso vs USD. The current administration has been overtly populist, particularly in the last few quarters. A reliable symptom of acute populism is rising government debt.
The growing indebtedness tilts investors’ risk perception toward the negative. As a result, market participants are not very happy with the purchase of Colombian government bonds, and the CO10Y has grown 6.71% YTD.
Beyond fixed income, rising uncertainty about fiscal policy and accumulating debt burden are reflected in Colombian equities, which delivered modest YTD gains. The only exception is Ecopetrol (NYSE: EC), but to underline that, the driving factor is the global energy landscape first, and domestic politics, though crucial, is a secondary factor. Indeed, a right-wing president coupled with Brent >$90/bbl is the best possible scenario for Ecopetrol.
Want to read more about Colombian crude as an asymmetric bet? Check the latest equity pick for Researchers and Strategists.
Now, a few words about banks. The conglomerate Grupo AVAL (NYSE: AVAL) delivered about 10% YTD gains. Its fierce competitor, Grupo Cibest (NYSE: CIB), recorded about 2.9% YTD gains.
The construction materials giant, Cementos Argos (OTC: CMTOY), scored not-so-bad YTD figures with its 10.8% gains. I wager that, in the long term, cement producers, along with steel makers, will win big due to the acute infrastructure issues in LatAm. Those issues result from the growing gap between the unprecedented rate of urbanization and chronic underinvestment in infrastructure.
More about the infrastructure gap as an opportunity, you can find here:
Last but not least, the question is: How am I going to bet on Colombia?
This is a classic thematic bet, so I apply my framework for stacking thematic edges. This is what I am talking about:
Catalyst: an event that prompts investors to shift their perceptions and expectations about a company, region, industry, or global economy. Simply, strong catalysts are about catalysts → phase transitions → impulsive price action → increased odds.
Price Action: I use monthly charts to search for phase transitions and price action near the 12MMA. Price action is about good enough timing, i.e., when (not) to enter the trade. Supportive price action as an edge tilts winning odds in your favor.
Valuation: I favor “bottom fishing” valuations, but occasionally I am happy to pay more when there is strong momentum. Valuation is about higher upside and limited downside, i.e., increased asymmetry. Adequate valuation as an edge expands the trade’s risk-reward.
Liquidity: For thematic bets, I seek the most liquid names to build exposure, as liquidity breeds liquidity; plus, liquidity enables execution speed and lower costs. Liquidity is about knowing two things: first, big money eventually will come, and second, there is always a counterparty ready to absorb your position. Ample liquidity as an edge gently tilts winning odds in your favor.
Fixed Income: Debt instrument performance is a reliable indicator of investors’ views on the company, region, or industry. Fixed-income investing is 80% downside risk management and 20% yield/gains exposure, so when bond traders bid up, the perceived risk declines. Rising bond prices as an edge indicates a lower probability of loss.
Here is how this framework works in practice. For the curious, Grupo AVAL is part of TheOldEconomy portfolio. More about you can read here:
Stacking Edges: Grupo AVAL
Catalyst: anticipated political change in Colombia
Price action: Tier 2 setup, where price is just above the 12MMA in an accelerating bullish trend.
Liquidity: The company is large enough to attract big money when LatAm becomes hot for institutional investors. Plus, transaction friction (bid-ask spreads, speed of execution, brokerage fees) is minimal for the EM name.
Valuation: Grupo AVAL is a traditional bank, so the classics, Price to Book and Price to Earnings, work fine. AVAL is the undisputed bottom fish in the LatAm banking universe. Compared to its arch-rival, Grupo Cibest (NYSE: CIB) offers more than a 100% upside based on the Price-to-Book ratio. Even compared to the next-cheapest entity, the Argentine banking conglomerate Grupo Galicia (NYSE: GGAL), AVAL is significantly undervalued.
Fixed Income: AVAL’s publicly traded bonds, 4.375% due in February 2030 (ISIN: USG42045AC15), have been in a bullish regime for the last several quarters, indicating that investors perceive diminishing downside risk.
PS: For more actionable and asymmetric ideas on LatAm and beyond, consider TheOldEconomy premium plans: Researcher and Strategist.
Thank you for being part of TheOldEconomy. Here’s to your continued growth and success, one wise decision at a time.
Invest wisely,
Mihail Stoyanov
Founder, TheOldEconomy
Everything described on this site, TheOldEconomy.substack.com, has been created for educational purposes only. It does not constitute advice, recommendation, or counsel for investing in securities.
The opinions expressed in such publications are those of the author and are subject to change without notice. You are advised to do your own research and discuss your investments with financial advisers to understand whether any investment suits your needs and goals.
Thank you for this piece of informational value.
Do you recommend entering also in stocks like Ternium, or Gerdau (this one looks a bit expensive now)?
And would you invest in banks like Banco de Chile or Banco de Santander Chile at this moment?