Colombia: Local markets views ahead of the transition: Stay OW FX and OW rates

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Colombia: Local markets views ahead of the transition: Stay OW FX and OW rates

Tania Escobedo Jacob AC Global Markets Strategy

(1-212) 622-4128 17 July 2026 J P M O R G A N

tania.escobedojacob@jpmorgan.com

FX: There is still room… We moved OW COP from MW

Carry remains a key theme in Latam, but idiosyncratic risks are increasingly driving

currency selection across the region. We recently upgraded COP to OW (from MW), while

maintaining our overweight in MXN, and keeping BRL at marketweight. We view COP as

a more robust carry vehicle, and the shift to OW also reflects our assessment that heightened

electoral risk is transitioning from Colombia to Brazil. In this note, we look into the reasons

we think there is still room for COP to deliver positive total returns, despite the very rapid

appreciation we have seen YTD.

The Colombian Peso is the best performing currency this year, accumulating a 16%

gain vs USD, well above the 7% and 3% advances of BRL and MXN respectively. The

rapid and sizeable moves of the currency this year (Figure 1TheColombianPesoisthebestperformingcurencythisyear) have opened the question of

whether or not there is further space for COP to deliver positive total returns. In short, we think

there is. In our baseline scenario, where external conditions are expected to remain favorable

to carry strategies (resilient growth, healthy risk appetite, and only moderate Fed tightening),

COP can continue to perform.

The optimism around political change is underpinned by high carry. Colombia is going

through a regime change towards what is expected to be a more orthodox and fiscally-

conservative government. And while a tighter-than-anticipated election result and the

resulting weaker mandate may constrain the pace and scale of near-term fiscal consolidation,