Venezuela’s Markets Plunge

Venezuela’s markets tanked on Tuesday following the announcement by president Hugo Chávez of further radical plans ahead of his new six-year term in office, which begins Wednesday. Chávez’s comments, which included nationalization plans for the country’s power and telecoms sector, led to tumbling stock and bond prices, Tuesday. The Caracas share index fell almost 19% and the yield on Venezuela’s internationally traded benchmark dollar-denominated 2027 global bond rose to 7.079%. Venezuela’s news was felt in other regional exchanges, such as those in Argentina, Mexico and Brazil, where companies with large investments wait and see what might happen to their holdings. Nevertheless, foreign investors in Latin American equities were urged not to panic. Citigroup, for example, issued a note explaining that the broader implications for foreign investors would be “tiny” given the fact that Venezuela is essentially “non-investible”. Apart from those investors holding ADRs in CANTV, Venezuelan stocks did not make up the broad Latin American investible equity universe after being expelled from MSCI GEMS in 2006, said the Bank. It did, however, caution that Argentina might follow Venezuela’s lead and said it reiterated its “Underweight recommendation on both Venezuela and Argentina within a Latin American equity portfolio”. However, the Bank concluded that its forecast “that regional equities rise by 10-15% in U.S. dollar terms this year is unchanged”.