Equity Strategy: Bullish Materials, Assessing Energy Sector Recovery


We have turned more constructive towards Colombia's IGBC benchmark equity index, as sentiment towards several sectors, as well as their underlying fundamentals, are showing early signs of a recovery following a poor performance in H113. However, f or the time being, we prefer to maintain our neutral stance on the IGBC and play the ongoing bounce in Colombian equities through specific sectors that are set to outperform the index. In our previous Colombia Equity Strategy ( see 'Monitoring Post-Sell-Off Opportunities', June 14 ) we identified the materials and energy sectors as potential outperformers. Since then , we have initiated a bullish position on materials company Cemargos in our Americas Asset Class Strategy Table ( see 'Bullish Colombian Materials', July 2 ), and are considering turning bullish on energy stocks upon confirmation that the sector's fundamentals are improving.

Materials Will Continue To See Gains As Infra Outlook Improves

While o u r bullish position on Cemargos has alre a dy delivered 10.9% of implied gains since initiation on July 2, nearly reaching our initial share price target of COP9,000 (currently trading at COP8,850), we still see further upside potential. We are now targeting COP9,500, as improvi ng fundamentals will likely sustain investor optimism over the coming weeks at least . Indeed, we expect a strong H213 and 201 4 infrastructure-related project pipeline, in which Cemargos, with nearly a 50.0% market share in the cement sector , is well positioned to reap the benefits ( see 'Cemargos Emerges As An Outperformer To Watch', July 10 ) . The expected improvement in the infrastructure sector will be driven by a government stim ulus programme, which will provide US$390mn to accelerate the completion of ongoing projects, which should offset some of the tendering delays seen in recent months. While we maintain a strong positive conviction towards the sector's fundamentals, we are moving up our stop-loss level from COP7,750 to COP8,450, in order to secure at least 5.9% in implied gains , in the event of a reversal in market sentiment.

Opting To Play Bounce Through Sector Selectivity
Colombia - IGBC Benchmark Equity Index (weekly)

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This article is tagged to:
Sector: Country Risk
Geography: Colombia

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