Monday, July 4, 2011

Today's Major Market Move - Venezuelan Stock Market Up 22% for the Year

This may come as a surprise to most folks, but the best performing equity market in the world for the year is in Venezuela. They are up 22% with Ghana the next best at just under 18%.


It was recently made public that Chavez was being treated for cancer, the news of which caused a rally in Venezuelan bonds. From the Wall Street Journal:
“The news lessens the probability that Chavez can stay in power for an indefinite period of time and increases the probability that you get more of a market friendly government in Venezuela,” said Bret Rosen, a Latin America debt strategist with Standard Chartered Bank in New York. “That said, the market may be underestimating what a potential transition could look like.”

It's unlikely this is the same reason for the gain in equities since the major part of the uptrend occurred back in May.


Theoretically it's possible that Chavez had a diagnosis before May and some traders got wind of the news, but I find it highly unlikely that the bond market traders would've been kept in the dark up until now. Because of the Venezuelan government's dependence on oil for revenues, the elevated price of oil has probably given their stock market a boost. With that being said, the correlation this year between Venezuelan equities and the price of oil has been tenuous at best. Here's the chart of WTI futures:



(Click on the images for a larger view.
Click here for the current performance of global equity indexes.
Click here for the current chart of the main Venezuelan equity index.
Click here for the current chart of WTI Crude Futures.)

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