After announcing a 3.3 percent increase in January inflation
earlier today, the Venezuelan government has announced it will
devalue the bolivar to 6.3 per U.S. dollar from 4.3.
Venezuela, a member of the Organization of Petroleum Exporting
Countries (OPEC), is grappling with rampant inflation, which may
have prompted the currency devaluation.
Venezuela's inflation rate was 20.1 percent last year, its
best rate in four years, but still one of the highest in Latin
. Despite the new exchange rate, there is speculation that U.S.
dollars are commanding 16 to 17 bolivars on the black market.
News of the bolivar devaluation is having an curious impact on
various exchange traded funds. While there is no
Venezuela-specific ETF on the market today, there are several
exposure to Venezuelan bonds
The iShares Emerging Markets High Yield Bond Fund (NYSE:
) is actually trading slightly higher on below average volume, a
situation some traders may see as odd given EMHY's almost 18
percent allocation to Venezuela.
The Market Vectors LatAm Aggregate Bond ETF (NYSE:
) is off half a percent and trading at its lows of the day,
though it should be noted the ETF was already trading to the
downside before the Venezuela news hit the wires. Venezuela has a
7.75 percent weight in BONO, putting it well behind Brazil,
Mexico and Colombia.
One ETF that moved lower immediately following the bolivar
news might come as a surprise to some. The Consumer Staples
Select SPDR (NYSE:
) was dragged lower by declines in consumer products giants
Procter & Gamble (NYSE:
) and Colgate Palmolive (NYSE:
Last August, P&G warned that
it was bracing for a bolivar devaluation
. P&G and Colgate took earnings hits in 2010 when Venezuela
last devalued its currency. Venezuela accounted for about one
percent of P&G's 2011 revenue.
P&G and Colgate have had their share of trials and
tribulations in Venezuela. Several years ago, Venezuela's
consumer protection office announced it was investigating the two
companies, alleging they failed to comply with government price
controls on select household items.
The two stocks are top-10 holdings in XLP, combining for 17.7
percent of the fund's weight.
For more on
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