Colombia started the new year with a diplomatic showdown with the United States on January 26. Colombian President Gustavo Petro decided to go head-to-head with the newly inaugurated U.S. President Donald Trump over the repatriation of Colombian migrants. In a ten-hour stand-off, in which Trump threatened with a 25% tariff on Colombian goods, with the possibility of doubling it within a week, Petro took the escape route.
With Valentine’s Day approaching, the timing couldn’t have been worse, as the United States is the primary destination for Colombian cut flowers. The threat of severe economic penalties forced Petro to retract his statement, making Colombia an example for other Latin American nations considering challenging U.S. immigration policies.
Such drama would be bad for Colombian equities, one might think. However, the opposite happened, with a stark market bounce—a relief rally that suggests better times are near for Colombia, whose first term with a left-wing president did not bring the hoped-for changes.
Having given it a couple of weeks, no retrace has happened in the markets yet. It seems that Gustavo Petro sealed his own fate with this career-defining lame-duck moment. This article will provide some context and reflect on how Colombia came to be considered uninvestable by many, and how it is on the cusp of turning from hated to tolerated.
Colombia’s “Venezuela 2.0” fears
Since Gustavo Petro came to power in 2022, many investors deemed Colombia uninvestable. A former leftist rebel of the M19 guerrilla group in the 1980s, Petro assumed office on the promise of addressing social justice, climate change, and inequality. His Marxist background and ambitious plans to redistribute wealth soured market sentiment.
His election came on the back of widespread protests in 2021 after then-President Iván Duque proposed a tax reform bill to raise taxes to address Colombia’s growing fiscal deficit, which many deemed unfairly burdensome to the middle class and poor. The streets filled up with protesters and police brutality did not help the popularity of the government.
The unrest highlighted deep dissatisfaction with the political establishment, creating a fertile environment for Petro’s anti-establishment rhetoric and progressive platform. His ambitious plans to overturn Colombia’s highly unequal society included imposing a wealth tax.
Wealthy Colombians, concerned about the possibility of losing their capital, took their capital out of the country to safer destinations, such as real estate in Miami. For many, the election of Colombia’s first leftist president raised fears that the country could end up like neighboring Venezuela.
Global investors dump Colombian bonds
Last year, global investors massively pulled out of Colombian bonds due to a mix of international and local factors. A strengthening U.S. dollar fueled by expectations that the Fed will not quickly cut rates, soured market sentiment for emerging markets. Concerns over Colombia’s political shift under Petro since 2022, including his proposal to decentralize the government, along with disappointing tax revenues, reduced spending cuts, and an unexpectedly high minimum wage increase, further worsened investor confidence.
Foreign holdings in Colombia’s peso-denominated government bonds (TES) fell to their lowest level since 2016, with foreign investors accounting for just 18% of the $135 billion in outstanding bonds by year-end, down from 27% two years ago. Dutch investment firm PGGM sold $460 million, Singapore’s government sold $419 million, and Kuwait’s sovereign wealth fund sold $223 million, according to Colombia’s Comptroller Office in 2024.
Petro overpromised and underdelivered
As the first leftist president of Colombia, expectations among his supporters were high. In a country where the gap between the “haves” and the “have-nots” is big, many people looked to Petro to address poverty and inequality. However, despite claims of progress, he has done little to improve the living standards of his fellow citizens. The only significant reform passed—the pension overhaul—was heavily watered down, falling far short of its original goals.
Resentment toward his policies has grown, resulting in occasional street protests against his leadership, and his approval rating has plummeted. Poor execution and political resistance have contributed to the perception that his presidency is aimless. His inability to manage challenges was further highlighted by his swift retreat in response to U.S. pressure regarding deportation flights.
Market bounces after lame duck moment
The bottom was already set in Colombia’s equity market in August 2023, before the opposition won the local elections, as anticipated by the market. Since then, the Colombian market has seen a gradual upward trend as it has come to grips with the fact that Petro is not the revolutionary force he was made out to be.
The recent market bounce after the tariff dispute with the U.S. confirmed Petro’s lame-duck status. Although occasional political turmoil will be part of the remainder of his presidency, it does not seem to stand in the way of economic growth in Colombia.
The change in market sentiment gave the Colombian equity market a headstart. Its country ETF, the Global X MSCI Colombia ETF (ticker: GXG), is up over 19% year-to-date, making it the best-performing equity market in Latin America so far this year.
Main Colombian ADRs to consider
Several key stocks reflect this recovery, reversing Colombia’s status from a “hated” market in 2024 to a “loved” one in 2025. Notably, Bancolombia, the country’s largest bank, has seen a 30% rise this year. Two weeks ago, Morgan Stanley raised its stock rating for Bancolombia (NYSE: CIB) from Equal-weight to Overweight, increasing its price target to $53 from $40. The upgrade reflects improved economic conditions and Bancolombia’s central role in Colombia’s financial system.
Another key player in financials, Grupo Aval (NYSE: AVAL), is up nearly 48% for the year. While Bancolombia had already been trending upward, Aval’s higher perceived investment risk had made investors more cautious. However, this week’s positive shift in sentiment regarding Petro sparked a sharp rally, breaking its previous trend channel and boosting Aval’s stock performance.
Ecopetrol (NYSE: EC), Colombia’s state-owned oil giant, has also gained over 40% year-to-date. is attracting attention from institutional buyers such as the Schwab Fundamental Emerging Markets Large Company Index ETF (FNDE) and Robeco, who have been expanding positions in the company.
The path forward for Colombia’s market recovery
The recent bounce marks the start of a market recovery with plenty of room to grow. As seen with Argentina’s market revival, the shift from being “hated” to “ignored” and finally “loved” can be a slow process before suddenly spiking, offering impressive returns. Still attractively valued at a P/E nearing 10, Colombia’s equity markets still have significant growth potential.
Colombia is set to elect a new president in 2026, and until then, there will undoubtedly be significant political events, such as those involving Ecopetrol. Despite the market volatility common to emerging markets, especially in Latin America, a gradual recovery appears to be in the cards. The likelihood of a more market-friendly candidate winning the upcoming election is high, and this may provide an additional boost to share prices in Colombia’s equity market.
