Share issuances expected to flood Colombia's stock exchange with billions of dollars will impede a turnaround in the slumping local market, with breakeven now seen as the best-case scenario for 2011 after earlier forecasts for a 15 percent gain.
Uncertainty in global markets, with an ongoing crisis in the euro zone and the United States teetering toward a default, are also expected to keep the market lower.
Analysts say expected issuances from blue chip companies in Latin America's fifth-largest economy not only make investors sell their current holdings in search for liquidity, but the declines also put downward pressure on the pricing of new shares.
Estimates show stock issuances from oil company Ecopetrol, retailer Almacenes Exito and investment fund Gruposura, all expected later in 2011, could add up to $4.5 billion.
The average amount traded daily on the Bogota exchange is about $80 million.
"Except for Ecopetrol, starting this year nobody had all those issuances in mind," said Carlos Gonzalez, Medellin-based analyst at Bolsa y Renta.
"Expectations for the market were a lot more solid," he said. "But all these new stocks weigh strongly on the market's valuation."
Analysts say the size of the local market will make it hard for all that supply to be absorbed, further weighing on prices.
Despite a surge in cash inflows and an investment grade rating from the top rating agencies, Colombia's benchmark IGBC stocks index is down almost 11 percent year-to-date to around 13,800. The decline follows gains of 60 percent in 2009 and 33.5 percent in 2010.
The index is also underperforming a regional benchmark, with Latin American stocks as measured by MSCI down 5.4 percent in 2011.
Polls at the beginning of the year showed bets of a 15 percent gain in the Colombian benchmark for 2011. Now, a 5 percent decline is expected, with best-case scenarios pointing to a breakeven year.
"Issuances slow buying in other companies and dry up volume because they make investors pause to think if they want to participate in the primary or secondary markets," said Cesar Cuervo, analyst at Correval in Bogota.
The market downturn may have also slowed plans for initial public offerings from dozens of companies, further weighing on the market's outlook.
Experts say the performance of Colombian stocks does not match the good year corporations are having, with ballooning profits boosted by a stronger economy and massive foreign investment.
"From a fundamental perspective there's no reason not to reach the expected growth" in the stock market, said Juan Nicolas Pardo, head of economic research at Valores Bancolombia.
But there could be a silver lining in the market's pullback, at least for mid-term and long-term investors. Analysts say once the expected issuances price, the fourth quarter could turn into a buying opportunity.
"Many see value below 13,000 points" on the benchmark index, said Felipe Campos, head of economic research at Alianza Valores.
"A bullish trend could start after August, and we could end the year breakeven," he said.
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