News that Venezuelan President Hugo Chavez's health is rapidly
deteriorating does not appear to be having an adverse impact on
some of the
that offer exposure to Venezuelan bonds. This is a theme worth
monitoring because the bond market is the only avenue most
Americans have for investing in the South American nation.
Vice President Nicolas Maduro, the presumed successor to Chavez,
and other senior Venezuelan recently flew to Cuba where Chavez is
attempting to recover from a fourth cancer-related procedure.
Maduro has described El Comandante's health as "delicate,"
according to London's Guardian newspaper
The Telegraph reported a situation more dire. Citing a
well-known Venezuelan physician, the Telegraph reports
the last procedure on Chavez was a failure and the
president is living his last days
As was the case in
December when Chavez first arrived in Cuba
, ETFs with exposure to Venezuelan debt are mixed on the most
recent batch of headlines.
During Thursday trading, the Market Vectors Emerging Markets
High Yield Bond ETF (NYSE:
), on light volume, touched a new all-time high and settled just a
penny below that new high. HYEM, which tracks emerging markets
corporate debt, features a weight of 8.73 percent to Venezuela. Not
to mention, the ETF's largest holding is an issue from Petroleos De
Venezuela, the country's state-run oil company, maturing in 2017
with a coupon of 8.5 percent. Another Petroleos De Venezuela issue,
this one maturing in 2014 with a 4.9 percent coupon, is also found
among HYEM's top-10 lineup.
Also on light volume, the iShares Emerging Markets High Yield
Bond Fund (NYSE:
) touched a new all-time high on Thursday. EMHY, which debuted in
April 2012 and already has close to $200 million in assets under
management, is the ETF with the largest Venezuela exposure. South
America's largest oil producer accounts for 15.21 percent of EMHY's
country weight, putting it just behind the 15.3 percent the ETF
devotes to Turkey.
One explanation for the bullish performances of EMHY and HYEM in
the face of negative news about Chavez's health is that Venezuela
alone is not the primary driver of performance -- in either
direction -- for these ETFs.
Another possible explanation is that traders know that even if
Chavez passes away and Maduro becomes president, a highly probable
scenario, Venezuela's constitution mandates that new elections must
be held within 30 days if Chavez is not sworn in on January 10.
That could open the door for Venezuelans, assuming the elections
are truly democratic, to elect a more free-market, pro-business
regime. If that happens, Venezuela's economy could be on a path to
becoming more like Peru's or that of neighboring Colombia.
All of that is speculation until Chavez's health dramatically
improves or he passes away. Interestingly, one ETF with Venezuela
exposure did not get in on the good times on Thursday. The Market
Vectors LatAm Aggregate Bond ETF (NYSE:
), which features a 9.53 percent allocation to Venezuela, slid
almost one percent on volume that was more than double the daily
For more on Venezuela and ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment advice.
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