Guerrilla. Economist. Colombia’s next president?

This is an audio transcript of the FT News Briefing podcast episode: Guerrilla. Economist. Colombia’s next president?

Marc Filippino
Good morning from the Financial Times. Today is Friday, May 27th, and this is your FT News Briefing.

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China is extending a helping hand to Sri Lanka. Voters in Colombia could elect a former M-19 rebel as their next president this weekend. In markets, Snapchat’s parent company sent equities into a tizzy, and there was a $7bn sell-off in European bank stocks this year. And it’s largely thanks to one portfolio manager. I’m Marc Filippino, and here’s the news you need to start your day.

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Sri Lanka’s prime minister said that China has offered him a few hundred million dollars to deal with the shortage of essential goods. He hopes to finalise the loan while the country negotiates an IMF bailout. The country’s in an economic meltdown made worse after the war in Ukraine took away critical tourism revenue. Foreign reserves have dried up, and last week Sri Lanka became the first Asian country to default on its foreign debt in more than two decades. Sri Lanka owes China several billion dollars in debt and wants to renegotiate those loans. But so far, Beijing has refused and is offering aid and additional loans instead.

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US equities had a rare good day yesterday. The Nasdaq ended up around two and a half per cent. It came after yet another week of volatility. On Monday, social media company Snap had some bad news that triggered the downturn. It said the macroeconomic environment had deteriorated faster than expected. Snap shares caved so did shares in other social media companies. Here to unpack the latest tech sell-off is our markets editor, Katie Martin. Hey, Katie.

Katie Martin
Hey, how you doing?

Marc Filippino
Doing well. So, we’ve established that you and I are not Snapchatters. (Inaudible) use Snapchat.

Katie Martin
I’m too old for that.

Marc Filippino
 . . . because we’re old. Why are you so interested in this story about Snapchat?

Katie Martin
Yeah, so Snapchat, I mean, I don’t get it. You send people messages. They’re pictures. They disappear after a while. It’s not a systemically important company in and of itself. The interesting bit to me is that shares in the company dropped about 30 per cent in a day after it put this out. That’s not normal. And the weird thing about is that we keep seeing companies getting absolutely taken to the woodshed in the stock markets when they put out either bad earnings or warnings over what might happen to their earnings in future. So if you cast your mind back just a few days, a very different type of company, Target, US retailer . . . 

Marc Filippino
That was last week, right?

Katie Martin
Exactly. Its shares went down 25 per cent in a day. You know, not so long ago, you know, Netflix really got the ball rolling a few weeks back. Its shares tanked 40 per cent. So the interesting bit to me is that you are just seeing an absolutely merciless environment among investors. Now, companies, particularly if they’ve got a techie flavour, are getting absolutely no mercy.

Marc Filippino
All right. Let’s pause the conversation about equities and talk about US Treasuries, government bonds. They have finally stopped the skid. What happened? What happened to reverse the downward trend that we’ve been seeing, Katie?

Katie Martin
You know, at its core, we just reached a point where Treasuries were so cheap historically that quite a lot of investors have said, first of all, they’re just so cheap that I can’t resist. I’ve got to buy some of this stuff. It hasn’t been this cheap in ages, and I doubt is going to be this cheap again so I’m going to stock up and buy some. And the other is that there is this growing sense that it’s going to be really, really, really difficult to get through this period where central banks are raising rates without them inducing a recession. And if there is a proper recession, if global growth goes into reverse or if growth in some key economies goes into reverse, that would just be a complete change of tone. And the way to hedge yourself in that sort of environment is to buy Treasuries. So this is investors’ way of saying, Oh, we’re a bit worried about this. We are not super confident that the Fed is going to be able to, you know, land this plane without a really heavy bump. And we’re going to hedge against that by buying some more Treasuries.

Marc Filippino
Katie Martin is the FT’s markets editor. Thanks, Katie.

Katie Martin
Pleasure.

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Marc Filippino
European Bank shares have been like market pariahs over the past decade. One of the few active investors willing to bet on them was the multitrillion dollar fund manager Capital Group. It became a major shareholder in banks like Deutsche Bank, Barclays and Santander. That is until this year. After a massive sell-off in European bank stocks, the FT’s banking editor, Stephen Morse, took a closer look.

Stephen Morris
So we started doing a little bit of digging, and we worked out the Caps group were behind this. Now, Capital, one of the world’s largest institutional investors with 2.7tn of assets, so for them to have been reversing their bet, you know, their contrarian bet on European bank stocks seemed to us to be significant. So we went through filings. We contacted sources, and we managed to find that they’d actually sold more than 7bn. And it was largely due to this guy, Nick Grace.

Marc Filippino
So, Stephen, why did Nick Grace decide to just dump so many of his shares in European banks?

Stephen Morris
His sentiment had changed after the war in the Ukraine, the prospect of interest rates not going up quite so much, which would have been a big boost to bank profitability. And he decided that he was going to get out. They’d had a good run in 2021 as bank stocks had recovered after the pandemic, increasing almost 95 per cent that year. And he started selling them even when he had to take losses because of the size of the stakes they were selling all at once. And because of his influence internally, a lot of people pulled out the door, essentially. They also sold their stakes and left the lot of banks like Deutsche or Barclays with kind of big questions to answer, like why has one of your largest shareholders lost faith in either your business model or your earnings prospects for the rest of the year?

Marc Filippino
So aside from our guy, Nick Grace, can you remind us why so many investors did not want to touch European banks for so long?

Stephen Morris
Well, European banks have been very slow to restructure after the financial crisis, which, you know, was more than a decade ago. They suffered from very low profitability. They’ve also paid a lot of big fines for misconduct, for litigation issues. And they’ve also been losing market share to their rivals in Asia and in particular the US. Many people think that this might start to change now as their balance sheets have been cleared up of bad assets. They stopped paying huge misconduct fines, and interest rates could sort of turbocharge their margins. But as I said, the war in Ukraine really brought all of this to an abrupt halt. Big question marks were asked about the direction of the global economy. Cost of living crisis erupted, which led to the prospect of people defaulting on their debts and banks not being paid back. And then, of course, you had surging inflation as well, which is all sort of combined this sort of constellation of negativity, which is soured, a lot of investors on the sector, but in particular this guy, Nick Grace of Capital.

Marc Filippino
Stephen Morris is the FT’s banking editor. Thanks, Stephen.

Stephen Morris
Thank you very much.

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Marc Filippino
Colombia could soon be run by a former rebel-turned-economist (rally sound on the background). That was a rally for Gustavo Petro in the capital Bogotá earlier this month. Petro is the favourite to win Colombia’s presidential election. The first round of voting is this weekend. The FT’s Michael Scott met Petro during a recent visit to Colombia. He says Petro is the candidate that best represents the need for change.

Michael Stott
And Colombians are hungry for change. They’ve had several years of drift under a centre-right government, which is unpopular. Citizens feel has not done enough for them. The cost of living is going up. Inflation, which is a problem everywhere, is actually particularly bad in Colombia. And something that I heard while I was there was that potatoes, this is an Andean country. It’s the home of the potato. Potatoes have doubled in price over the last year. So you’ve got these sorts of things happening which are making people angry and upset, and they feel the time has come for a real change in the country, not just a change of face, but a change of politics. And Petro has had a long career as a social activist and radical politician on the left. And so he’s the one riding that wave of change.

Marc Filippino
Now, Michael is a far-left candidate, what does Petro want to change about the country’s economy, and is it do-able?

Michael Stott
Well, I’d say he wants to change almost everything, Marc. If we start with the basics on the economy, he thinks the state should be an employer of last resort for people who don’t have jobs. The state should take them on and pay them. He thinks that there should be a change in the country’s trade position. He wants the trade agreement the United States renegotiated. He wants a green economy. He wants to end new coal and oil exploration. He wants to ban fracking. This is a country where more than half the exports are oil. So some pretty radical changes. You ask whether it’s do-able? I think there’s certainly quite a lot of scepticism around about that, not least because Petro’s party did only controls under a fifth of the seats. So he’s going to need a lot of alliances and a lot of negotiations if he’s going to be able to get almost any of these done.

Marc Filippino
So this could all be forced into a run-off election after this weekend. But if Petro does win eventually, what would it mean for the region more broadly?

Michael Stott
I think it would cement a trend we’ve seen in the election cycle in the region over the past year, Marc, which is that there’s been a strong anti-incumbency swing. So incumbent governments have been very unpopular, and they’ve generally been booted out. Of course, because most of the incumbent governments were centre right or right, most of the new winners from that are left or far left. And so Colombia would be following very much in that trend. But I think it’s more significant because Colombia has never elected a truly leftwing government before.

Marc Filippino
Michael Scott is the FT’s Latin America editor. You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

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The FT News Briefing is produced by Sonja Hutson, Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Michael Lello, David da Silva, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.