Urgent: Strong stock market crash; drop of 5.09% after Gustavo Petro’s victory in the second round

Colombian stocks, which are a thermometer of investor sentiment on the country’s economy, They started their day with strong downward pressure after the election due to the uncertainty of what might happen with the new government of Gustavo Petro.

In its first hours of trading, the Msci Colcap index, which is the benchmark index for national equities, posted a drop of 5.09% and stood at 1,380.03 units.

The decline was driven by Ecopetrol shares, which fell 11.49% on fears of a halt in oil activity in the country. Similarly, the country’s major financial conglomerates are under pressure from the stock markets with declines of 5.51% in Bancolombia and 5.82% in Grupo Aval.

The stock market tumult also comes amid a sharp rise in the dollar, which is once again above 4,000 pesos.

Analysts await the decisions taken by the new government concerning its new economic team and, above all, concerning who will be elected as the new finance minister. The calm of the markets will depend on this name, as happened in Chile, where, despite the rise of a leftist government, a pro-market economist was appointed to the Treasury portfolio, when he had just chaired the central bank of the southern country.

Among the names considered as Gustavo Petro’s finance ministers are economists Alejandro Gaviria, his wife Carolina Soto and former minister José Antonio Ocampo, who would be very well regarded by the markets. Ricardo Bonilla, who was Petro’s treasury secretary when he was mayor of Bogotá, is also running for the job.

difficult year

Despite electoral uncertainty, global trade difficulties, inflation and the war in Ukraine, Until Friday, the Colombian stock exchange showed a positive behavior of 3%, which could be reversed today.

Until Friday, June 17, the best performing stock in the country was that of Nutresa with a valuation of 30.6%, followed by Grupo Sura with 23.2%. Today, the first remains on the rise, with an increase of 1.60% despite all the difficulties of the market, while the second falls by 3.71%.

So far in 2022, the worst performing stocks in the national stock market have been those of Grupo Aval and construction company El Cóndor, whose shares were devalued between January and June by 23.9% and 29.6% respectively. Today Aval maintains the downtrend, but the Condor rises 2.70%

The oil problem

Ecopetrol being one of the most important shares of the Colombian Stock Exchange, its upward or downward movement is decisive in the behavior of the market. The oil company, as expected, is affected by the plan of the new Colombian president not to pursue oil exploration contracts to lead to an energy transition in the country, which he announced and reiterated all throughout his campaign.

According to the Colombian Oil and Gas Association (ACP), If progress is made on Petro’s decarbonization plan, production would fall by 47% in five years, in the case of oil, and 27% in gas, with an anticipated loss of energy autonomy, which would lead to importing gas from 2026 and oil from 2028.

However, Analysts expect the new president to tone down his rhetoric and, as he grapples with the country’s fiscal realities and heavy dependence on oil revenue, he will phase out his decarbonization plan.