Colombia: Rags-to-Riches Success, With a Booming Bull Market That Leads World for 10-Yr. Returns

Dr. Mark J. Perry

Both the Wall Street Journal and Investor's Business Daily had editorials today about the presidential election in Colombia, which should also receive some attention for its record-setting, booming stock market rally. Colombia's MSCI Index topped 900 for the first time last Friday, and registered gains yesterday and today, closing at an all-time record high today of 909.25 (see chart above, data here). The bull market in Colombia is especially impressive when you consider that its market stagnated for the entire decade between 1994-2004, reached a low of 42 in December 2000, before it skyrocketed to almost 600 by early 2006, and then went over 800 last year and over 900 this year.

On a year-to-date basis, Colombia's market has increased 15%, which is the world's highest stock market return since January. Colombia's one-year return of 47.5% isn't too bad either, although Mexico, Indonesia, Peru and Turkey have done slightly better. But when it comes to the average annual stock market return over the last ten years, no country in the world comes close to Colombia's return of 34.55%; not China (6.75%), not Turkey (2.66%), not Russia (13.24%), and not Brazil (14%). In fact, the only country that even comes remotely close is neighboring Peru with a 23.6% average annual return since June 2000.

The WSJ and IBD focus mostly on Juan Manuel Santos' landslide victory on Sunday's (note that most other countries vote on weekends, and that weekday voting in the U.S. is unique), but point out some important economic lessons about free markets and free trade:

IBD: "Santos is probably most dangerous for Venezuela's Hugo Chavez, because Colombia's rags-to-riches success story is so dramatic — showing that any beat-up nation can drag itself out of misery through markets — and because Venezuela and Colombia are such close neighbors. Word gets out about how well things are going in Colombia and it spreads fast in Venezuela. Santos need never fire a shot at Venezuela to slay Chavez's revolution because the power of the markets will do it for him.

Santos is also planning something that is likely to give Chavez — and for that matter, President Obama, something to think about — a forging of a more assertive Pacific alliance with free-market Chile and Peru, as well as the nations of the Pacific Rim. Given Obama's dithering on free trade — and the fact that Canada on Tuesday, has just finalized its pact, and it's obvious Colombia is going to prosper with or without its friends or enemies."

WSJ - "This triumph in Colombia also ought to echo in Washington, where Democrats in Congress and the White House continue to deny a vote on the U.S.-Colombia free trade agreement. One liberal Democratic excuse has been concerns about Mr. Uribe's (current president) security policies, but Colombia's people have now spoken. Like Mr. Uribe, Mr. Santos wants the free trade deal to force his country to face the discipline of global competition and turn Colombia into the next Chile or Taiwan. Such progress would further reduce the FARC's appeal, and it is certainly in the U.S. national interest. This one shouldn't even be controversial.

See CD post here on Colombia, where I pose the question:

With incredible export opportunities awaiting U.S. manufacturers in booming, emerging markets like Colombia (see chart above), with the huge potential to create much-needed jobs for America’s workers, and with universal support from almost every sector of the economy, what could possibly be holding up the Free Trade Agreements with Panama, Colombia and Korea?