Colombia's Stock Market Surged 91% in 2025—Making It the Best Performer on Earth

In a year when the S&P 500's 17% gain felt like cause for celebration, Colombia's stock market delivered something that belongs in an entirely different category: a 91% surge that crowned the Colcap as the best-performing equity index on the planet.

The Latin American nation—often overlooked by global investors in favor of Brazil or Mexico—emerged as 2025's most compelling investment story. The Colcap climbed past 2,000 points for the first time, reaching an all-time high of 2,120, as a perfect storm of cheap valuations, foreign capital inflows, and political optimism propelled the market to heights few had imagined possible.

From Bargain Bin to Global Champion

Colombia's remarkable rally began from a position of extreme undervaluation. At the start of 2025, Colombian equities traded at just 5.6 times forward earnings—roughly half their long-term average of 11.2 times, and a fraction of the multiples commanded by developed market stocks.

For value-oriented investors, the opportunity was hard to ignore. Blue-chip Colombian companies were trading at prices that implied permanent economic decline, even as the actual economy continued to function normally.

"Colombia was simply too cheap to ignore. You had profitable companies with strong dividend yields trading at single-digit earnings multiples. The risk-reward was asymmetric in favor of buyers."

— Ricardo Monsalve, Emerging Markets Strategist at Franklin Templeton

What Drove the Rally

Several factors converged to unlock Colombia's potential:

Foreign capital flows: As the U.S. dollar weakened (posting its worst year since 2017), the Colombian peso strengthened, making local assets more attractive to international investors. Foreign portfolio investment into Colombian equities reached its highest level in a decade.

Dividend yields: Core utilities like ISA offered dividend yields above 6%, attracting income-focused investors seeking alternatives to low-yielding developed market bonds.

Political transition optimism: With presidential elections scheduled for 2026, investors began pricing in the potential for a more market-friendly government. Current President Gustavo Petro's approval ratings have declined, raising expectations for policy shifts.

Commodity tailwinds: As a major oil producer, Colombia benefited from relatively stable energy prices. Coffee, the nation's other major export, also held firm.

Latin America's Broader Renaissance

Colombia's success was part of a larger Latin American story. After a dismal 2024 that saw the region rank as the world's worst-performing equity market, Latin America staged a dramatic comeback.

The Morningstar Emerging Markets Americas Index climbed more than 25% in U.S. dollar terms through mid-year, with Colombia leading but other markets contributing:

• Brazil: The Ibovespa gained approximately 49% in dollar terms as investor sentiment improved despite political noise
• Mexico: The IPC rose 14.5%, benefiting from nearshoring trends and trade flows
• Chile: The IPSA climbed 21.5% as copper prices supported the mining-heavy economy

Winners Within Colombia

Within the Colombian market, several sectors and companies posted exceptional returns:

Financials: Bancolombia and Grupo Aval, the nation's largest banking groups, surged as credit quality remained stable and net interest margins expanded.

Utilities: ISA, the dominant power transmission company, attracted yield-hungry investors with its stable cash flows and generous dividends.

Consumer stocks: Nutresa and other consumer-facing companies benefited from improving sentiment about domestic demand.

Risks and Cautions

Colombia's spectacular rally also brings elevated risks for investors considering entering now:

Valuation normalization: After a 91% gain, Colombian stocks are no longer trading at distressed valuations. The Colcap's forward P/E has expanded toward its historical average, meaning the easy money has been made.

Political uncertainty: The 2026 elections could bring surprises. While markets are optimistic about a potential policy shift, Colombia's political landscape remains unpredictable.

Currency risk: Much of 2025's dollar-denominated returns came from peso appreciation. If the currency reverses, foreign investors could give back gains even if local stock prices hold.

Liquidity concerns: Colombia's market is relatively small and illiquid by global standards. Large investors may find it difficult to build or exit positions without moving prices.

Lessons for Global Investors

Colombia's 2025 performance offers several takeaways for portfolio construction:

Valuations matter: The best returns often come from deeply out-of-favor markets that recover. Colombia was universally ignored at 5.6 times earnings; it couldn't be ignored at 91% returns.

Diversification works: Investors concentrated solely in U.S. mega-caps would have missed Colombia entirely. Geographic diversification, though often frustrating, occasionally delivers outsized rewards.

Patience pays: Value investors who bought Colombian stocks in 2024 endured a difficult period before the rally began. Conviction in cheap assets eventually proved correct.

What Comes Next

As 2026 begins, the question facing Colombia investors is whether the rally has more room to run. Bulls point to continued economic growth, attractive remaining valuations relative to developed markets, and the potential for further foreign inflows.

Bears counter that easy gains are behind us, political risks remain elevated, and global risk-off episodes could disproportionately punish emerging markets.

One thing is certain: Colombia has earned its place on the global investment map. After a 2025 that will be remembered for generations, the Andean nation has proven that overlooked markets can deliver extraordinary returns for investors willing to look beyond the obvious.