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▷▷ 2021 ▷ Should you invest in a Venezuela ETF?

2 julio, 2021

There was a time when Venezuela would have been the investment destination of any foreign investor, but now, putting your money in the country is a risk. In the past, the country prided itself on being the world’s largest oil exporter, but since then Saudi Arabia has surpassed it; now it only produces a tenth of what it did twenty years ago. However, Venezuela is still the country with the largest oil reserves in the world, but it is not doing the country much good since oil prices fell in 2014. Venezuela depends on oil exports, and with low prices oil, the country suffered an outstanding debt, which has accumulated over the years to the point of not being able to pay for food imports. Still, investing in a Venezuela ETF would provide foreign investors with a diversified portfolio, but is it a risk worth taking given the current state of affairs? Let’s find out.

ETFs have been recommended for a long time

In 2012, Nasdaq named Venezuela the world’s best performing stock market, explaining that in Venezuela, stocks had more than tripled. As a result, Venezuela had become a huge investment attraction for foreign investors who reasoned that an ETF would be the ideal way to enjoy a piece of the oil pie. All this despite knowing that the country’s massive oil reserves were still at risk of being confiscated. Unfortunately, at the time, there were no equity ETFs, which means that anyone interested would have to settle for bond ETFs.

Fast forward to 2017, and foreign investors faced the same situation. Frontera posted that foreign investors hoping Venezuela would improve would invest in Venezuelan bond ETFs or stocks through ADRs. The article clarified that there were no ETFs investing in Venezuelan stocks yet, however, since bonds were the only option, investors faced significant risk. Fortunately, however, in the stock market, high risk translates into high returns, and since the bonds are offered at a steep discount, the spreads were supposed to be quite attractive to investors.

Why investing in Venezuela ETFs is no longer advisable

Unlike 2012, when the Venezuelan stock market was hailed as one of the best, in 2018, the Caracas Stock Exchange Index was the worst performer after collapsing 94%. Forbes reported that politics continued to affect the economy and JP Morgan dominated bond ETFs. While investors waited for President Maduro to be ousted, the value of the bonds had continued to decline.

The United States imposed sanctions on Venezuela’s crude oil, putting its economy in a much worse state than before. Washington insisted that sanctions remain in place until Maduro is replaced by new elections, but that remains a mirage. Even the bond managers stopped investing in the country’s ETFs. They said that any investor who insisted on putting their money there was irrationally optimistic. After all, the chances of recovery were slim thanks to hyperinflation and the drastic fall in productive capacity.

US citizens were prohibited from buying bonds of PDVSA (the country’s state oil and natural gas company). 8020 Investors added that while a savvy investor would take advantage of buying deeply discounted bonds and then selling them at a profit, US-imposed sanctions make it impossible for a US investor to do so. However, things could change if the country votes for a new president approved by the United States, which would subsequently mean that sanctions would be lifted.

There is hope for future investors

Energy and Capital posted that there is hope for investors, especially those who don’t mind taking risks. He explained that with the bond price so low and Venezuela defaulting on its debts, there was the opportunity of a lifetime for an investor seeking investments in high-risk, high-reward bonds. The main motivation is that the bonds could generate returns of more than 24%, not including capital gains resulting from the increase in bond prices.

Perhaps it is due to this clarification that small investment funds have begun to see that the logic of investing in Venezuela comes together. Three investment funds in particular: Copernico, Altana and Canaima Capital Management, bought bonds with …

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