By Tim Seymour
Ever seen “Weekend at Bernie’s”? Go check it out. Meanwhile now that Chavez’ death is a formality how do you play Venezuelan markets, and what has truly changed?
Well looking for an opportunity is not easy given Chavez’ demise has been well known for months (see “Weekend at Bernie’s”), and the local market is +400% since last June and +600% in the last 18 months.
Meanwhile knowing what to do with the currency (VEF) is your main issue (see recent 46% devaluation). As for real reform, current VP Nicolas Maduro is not necessarily whistling “Yankee Doodle Dandy,” and was hand chosen by Chavez as a successor so don’t expect a turn from “Chavista” style ruling if elected. Elections must be held within 30 days and there are opposition players (Cabello, Capirles) who may share some power(+ve).
Note that financially, Venezuela is a mess and the devaluation and recent oil windfall taxes were an effort to bring more VEF to the Treasury. Chavez, at least, had a debt repayment history that bondholders could get their arms around (sort of). Right now the bond market has priced in Chavez’s death as a bond friendly event.
Trading Venezuela should be approached by trading the region and who benefits. The Global X FTSE Colombia 20 ETF (GXG) is the largest regional trading partner.
The next obvious place is to review is the oil and gas space where many have been working to get access to this massive amount of reserves. Columbia’s collection of world class oil and gas players, again, are best positioned.
Ecopetrol (EC), Petro Rubiales (PRE) and Petrominerales (TSE:PMG) all trade in the US or Canada and are world class players. Houston based Harvest Natural Resources (HNR) is being picked over as we speak and should move higher in today’s action. Other obvious regional resource companies are Petrobras Argentina (PZE) and Petrobras Brazil (PBR) but each of these companies has their own problems that should overpower the Vene pop.
Also look in the consumer space where U.S. multinationals have been gaining major growth from the space but might be more concerned with the downside of the currency volatility and devaluation prospects, on top of the recent deviation discussed above. Colgate (CL) is a great company but expensive and trading at 52-week highs, with 31% exposure to Latin America. Venezuela is one of their biggest sources of Latin America revenue. Kimberly Clark (KMB) has already warned of the impact form the currency devalue to hit earnings 1-2%.