COP: Favourable April Seasonality (But Perhaps Less So This Year)
As shown below, COP’s April seasonality component is quite strong, mostly due to supportive dividend and corporate tax payments throughout the month (which can prompt USD repatriation into Colombia). This month’s tax payments should place between April 9 and April 22.
Some Ecopetrol dividend questions this April: Another very important April flow is usually the dividends paid by Ecopetrol to minority and majority stakeholders, which trigger repatriation of USD throughout the month. Although at least since 2019 Ecopetrol has paid dividends towards the end of April (or even in the first days of May), this year Ecopetrol will pay dividends to minority shareholders on April 3, implying that some repatriation took place in March already.
The amount paid to the minority shareholders in April is also quite small (~COP 0.78 trillion), though in line with previous years. The bigger question is whether any majority stakeholder (i.e., government) payments will take place at all in April, as Ecopetrol has stated that these payments are in turn contingent on the timing of the 2023 Fuel Price Stabilization Fund (FEPC) payments owed by the government to the company.
There is still a chance that a more substantial dividend payment to the government could occur in April (the total for the year is COP 11.4 trillion), but it could also be delayed to subsequent months.
COP remains primarily a carry trade: Although the country’s fundamentals are not as solid as those of peers, COP has continued to outperform since the start of the year and has maintained the highest correlation among EM currencies with carry strategies. So far, BanRep has been extremely cautious in terms of easing, and the potential for further acceleration in the pace of cuts hinges on the April 5 CPI print.
Barring a sharp downside surprise in the April CPI print or a broader risk sell-off, there is no clear catalyst for COP underperformance until at least the next BanRep meeting on April 30. April flows might not be as strong as they were in the last couple of years, but should still be supportive for the currency overall.
We add a very tactical short EUR/COP position into the end of the month as a play on broadly supportive local flow tailwinds and attractive carry for the pair.
NY Open – Waiting game |
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Risk sentiment improves after no geopolitical escalations over the weekend. USD trades flat alongside the majority of the G10FX complex, barring NZD, AUD which are up ~0.3%. Equity futures are in the green, Nasdaq futures leading gains ahead of a heavy earnings week, while oil and gold prices trade weaker. US yields are slightly higher, led by the long-end. No US data and with the Fed in blackout period, expect a choppy session ahead. EUR markets will watch President Lagarde and Villeroy, who speak at separate events from 11:30 EDT. MXN watches Economic Activity at 08:00, though will trade more in-line with risk sentiment. Colombia Senate will meet to approve the pension reform proposal, market reaction should be limited in the short-term. |