Should You Invest in a Venezuela ETF?

ETF

There was a time when Venezuela would have been the go-to investment destination for any foreign investor but now, putting your money in the country is a risk. In the past, the country prided itself as the largest petroleum exporter worldwide, but Saudi Arabia has since overtaken it; it now only produces a tenth of what it did twenty years ago. However, Venezuela remains the country with the largest oil reserves globally, but they are not doing the country much good since oil prices dropped in 2014. Venezuela relies on oil exports, and with low oil prices, the country suffered an outstanding debt, which has accumulated over the years to the point of being unable 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 top-performing stock market globally, explaining that in Venezuela, equities had more than tripled. As a result, Venezuela had become quite an investment attraction for foreign investors who reasoned that an ETF would be the ideal way of enjoying a piece of the oil pie. All this is despite knowing that the country’s massive oil reserves were still at risk of being seized. Unfortunately, at the time, there were no equity ETFs meaning that anyone interested would have to settle for bond ETFs.

Fast forward to 2017, and foreign investors faced the same predicament. Frontera published that foreign investors who were hopeful that Venezuela would take a turn for the better would invest in the Venezuela bond ETFs or equities through ADRs. The article clarified that there were still no ETFs investing in Venezuelan equities, yet with bonds being the only option, investors faced a significant risk. However, fortunately, in the stock market, high risk translates to high returns, and with bonds being offered at a steep discount, the margins were supposed to be quite attractive to investors.

Why Investing in Venezuela ETFs is no Longer Advisable

Contrary to 2012, when the Venezuelan stock market was hailed as a top performer, in 2018, the Caracas Stock Market Index was the worst stock market performer after collapsing by 94%. Forbes reported that politics were still affecting the economy, and JP Morgan dominated the bond ETFs. As investors held in to hope that President Maduro would be ousted, the worth of the bonds had continued to decline.

The US put sanctions on crude oil from Venezuela, placing its economy in a much worse state than before. Washington insisted that the sanctions remain until Maduro was replaced through fresh elections, but that has remained a mirage. Even bond managers pulled out of investing in the country’s ETFs. They said that any investor who insisted on putting his money there was irrationally optimistic. After all, chances of recovery were little thanks to the hyperinflation and drastic drop in productive capacity.

The US citizens were prohibited from buying PDVSA (the country’s state-owned natural oil and gas company) bonds. 8020 Investors added that although an expert investor would take advantage of buying bonds at steep discounts and sell them later at profits, the sanctions imposed by the US make it impossible for an investor in the US to do so. However, things could change if the country voted in a new president that the US approves, which would subsequently mean that sanctions would be lifted.

There is Hope for Future Investors

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

It is perhaps due to this enlightenment that small investment funds have begun seeing the logic of investing in Venezuela binds. Three particular investment funds: Copernico, Altana, and Canaima Capital Management, purchased heavily discounted bonds worth hundreds of millions of dollars. It was most likely a dream come true for Venezuela that had reportedly been looking for buyers of its bonds without any luck. The government’s bonds worth $60 billion were unattractive since they had barely paid interest in years. The investment funds were suing to force the Venezuelan government to make payments.

Other bondholders, including ETFs, are also expected to be pushed to sell their debt after JP Morgan had to cut the index weight down to zero. Selling them at whatever price was the primary option, and with ETFs owning at least 3% of the emerging market debt amounting to $3.2 trillion, the funds would have to sell off around $1.8 billion. One worker of a bond ETF said that it is a nightmare for passive funds, yet there is nothing more beautiful in finance than forced selling.

What You Should Know about Investing in Venezuela Altogether

The Caracas Stock Market Index is the only viable stock market in the country, and it trades in Bolivars, not dollars. Therefore, when you hear that it skyrocketed to 200,000%, that should be a major cause of concern for any investor because it means the stock market has become worthless. The political unrest makes it a challenge to be sure of the direction investments will take, especially when you have to consider that the government is notorious for seizing assets and engaging in other corrupt moves. With the US being the leading importer of Venezuela’s crude oil, yet the two countries are at loggerheads, investors are the sanctions’ victims. You might reason that you do not have to invest in an oil ETF, but the fact remains that oil is the economy’s backbone.

Add Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Careers CEOs Companies Education Entertainment Legal Politics Science Sports Technology
Mountain Bike
What is a Dual Suspension Mountain Bike?
Internet
How to Enroll in the Affordable Connectivity Program
Bicycles
10 Great Places to Buy Bicycles Online
Collectibles Credit Cards Investing Real Estate Stocks
Qualcomm
10 Semiconductor Stocks to Consider for Your Portfolio
Baseball Gloves
The Five Most Expensive Baseball Gloves Ever Sold
Data Breach
What to do When You’re Exposed to a Data Breach
Aviation Boats Food & Drink Hotels Restaurants Yachts
Roller Coaster
How Many Different Types of Roller Coasters Are There?
See the famous Place Pierre-Boucher Fountain
The 20 Best Things to do in Trois Rivieres, Canada
Washington State
10 Hidden Castles That Are Nestled in Washington State
BMW Bugatti Cadillac Ferrari Lamborghini Mercedes Porsche Rolls Royce
2023 Toyota Highlander
A Closer Look at the 2023 Toyota Highlander
2023 Aston Martin DBX 707
A Closer Look at The 2023 Aston Martin DBX 707
1990 Corvette ZR-1
Remembering the 1990 Corvette ZR-1
BMW Motorcycles Buell Ducati Harley Davidson Honda Motorcycles Husqvarna Kawasaki KTM Triumph Motorcycles Yamaha
2023 LiveWire S2 Del Mar Launch Edition
A Closer Look at The 2023 LiveWire S2 Del Mar Launch Edition
1975 Batavus HS-50
Remembering The 1975 Batavus HS-50
1997 Kawasaki ZX-6
Remembering The 1997 Kawasaki ZX-6
Electronics Fashion Health Home Jewelry Pens Sneakers Watches
Flare Jeans
What are Flare Jeans, and What Shoes Do You Wear with Them?
New Rado Over-Pole Worldtime
A Closer Look at the New Rado Over-Pole Worldtime
Hoodies
The 10 Most Expensive Hoodies Money Can Buy
Emeril Lagasse
How Emeril Lagasse Achieved a Net Worth of $70 Million
Fran├žoise Bettencourt Meyers
The 20 Richest Women in The World As of 2022
Alice Eve
How Alice Eve Achieved a Net Worth of $6 Million
Sydney Sweeney
How Sydney Sweeney Achieved a Net Worth of $4 Million