Under the Radar: Why Patient Investors Should Be Watching Colombia and Brazil Closely

Let me share something about investing that most of Wall Street would rather you did not know: The best bargains are usually found in the places that make people nervous. And right now, Brazil and Colombia are presenting bargains that the institutional herd is stampeding away from.

Robert Shiller did not win a Nobel Prize for peddling speculative theories. The Cyclically Adjusted Price-to-Earnings ratio (CAPE) has a track record longer than most traders’ careers, and it is telling us something important about Latin American equities: they are cheaper than a bottle of house wine.

When I examine Brazil’s CAPE ratio hovering around 6-7x versus the S&P 500’s elevated 32x, I see opportunity presenting itself forcefully. Colombia’s sits comfortably at around 8-9x. These are not merely numbers on a screen—they are the market’s way of signaling profound discomfort with these regions.

Excellent. I appreciate it when markets express strong disfavor toward assets I am considering for purchase.

Let me cut through the noise surrounding Brazil. Yes, Luiz Inácio Lula da Silva is back in office. Yes, fiscal policy is looser than conventional economics might prescribe. But here is what the pessimists are overlooking: Brazil’s economy is actually growing at around 3-3.5% while inflation is declining at a satisfying pace.

Brazil is getting pressured? That works in my favor. This makes Brazilian exports more competitive and their stock market an even better value when converting from dollars. Petrobras, Vale, and the banking institutions are generating cash flows that would impress any wealth manager, trading at valuations that suggest the global economy is facing catastrophe.

It will not. Brazil produces food, energy, and raw materials—the essentials the world actually requires. Not applications. Not digital entertainment. Real resources.

Colombia is the overlooked opportunity in Latin American investing, and that is precisely why you should pay attention. While everyone is fussing about Brazil’s political landscape, Colombia is quietly implementing business-friendly reforms under Gustavo Petro—indeed, a progressive leader implementing business-friendly reforms. Historical precedents exist for such developments.

The Colombian peso faces pressure but consider this: they are the fourth-largest coffee producer (demand remains stable, prices are trending upward), they possess substantial oil reserves, and their financial system remains fundamentally sound. When the rest of the region faced financial difficulties during past crises, Colombian banks maintained profitability.

Their stock market is small, illiquid, and overlooked. Precisely the characteristics we seek.

Here is why these markets could potentially double from current levels:

1. Mean Reversion is Mathematical, Not Mysterious: CAPE ratios do not remain at 6-9x indefinitely. When they progress toward their historical averages of 12-15x, you are looking at 50-100% potential appreciation before considering earnings growth.
2. Commodity Fundamentals: Food prices face upward pressure. Energy prices maintain their trajectory. Both countries are significant producers. The economics speaks for itself.
3. Demographic Advantage: While developed markets age, these countries have expanding workforces and growing middle classes. More workers, more consumers, more economic expansion.
4. Dollar Dynamics: The greenback cannot maintain dominance forever. When it weakens, emerging market assets gain attraction. History has demonstrated this pattern repeatedly.

Want to access these value markets without the complications of opening foreign brokerage accounts or managing currency conversion? Follow the proven strategy when seeking emerging market exposure: invest in the banks.

Here is a fact that remains obvious yet overlooked: If you have confidence in a country’s economic trajectory, invest in those who manage the financial system. In Brazil, that points to Banco Bradesco S.A. ADR (BBD), trading conveniently on the NYSE. In Colombia, consider Bancolombia S.A. ADR (CIB), offering the same ease of access.

These banking institutions are not simply playing quarterly earnings expectations games. Bradesco has maintained profitability through Brazil’s most challenging economic conditions for 79 years. Bancolombia? They are Colombia’s largest private bank, handling everything from corporate lending to retail banking while the country develops around them.

What I find compelling: When these economies improve—and historical patterns suggest they will—these banks receive multiple benefits.

First, their loan portfolios expand with economic growth.

Second, their asset values increase as property and business values appreciate.

Third, they provide steady dividend returns while investors wait for market recognition.

The appeal of these ADRs?

They offer liquidity, they price in dollars,  and they satisfy Wall Street’s regulatory requirements, so they are easy to buy.

Both banks are earnings double digit returns on equity and trading at a discount to book value.

Both have a history of paying high dividends to shareholders

The CAPE ratio is revealing what the market prefers not to acknowledge: Brazil and Colombia present the kind of value opportunities that can create significant long-term wealth.

Not within weeks.

Not within months.

But across the next 3-5 years, these markets could become the outperformance story that defied expectations. Just keep in mind: when everyone is seeking the exits, that is typically when you should be identifying the entry points. And frequently, the optimal path through that entry is acquiring shares in the financial institutions that control the economic infrastructure.