Venezuelan President Hugo Chavez continues to battle serious health problems, according to a number of recent news reports, and questions as to whether he will be able to attend his own inauguration, scheduled for next week, or even how much longer he may have to live, have set off a round of uncertainty for investors in Venezuelan sovereign bonds, according to Fran Rodilosso, fixed income portfolio manager at Market Vectors ETFs.
“At this point, I think one must assume that Chavez will not return from Cuba in time for his inauguration, and perhaps may not return at all,” says Rodilosso. “If a miracle of sorts does occur, and Chavez does return, bringing back some aspect of status quo, the most recent rally in Venezuelan debt will most likely unwind. But I think the market should find a floor before too long since it has, over the last 14 years, come to accept that Chavez, no matter how he governs, has for the moment demonstrated both the ability and willingness to pay his country’s debts.”
“Still, reports of the imminent death of Chavez, exaggerated or not, have added a large amount of upward volatility to the market,” added Rodilosso.
“What is concerning though, is that there is a process that must take place if and when Chavez becomes officially unfit to serve. Are the country’s institutions strong enough to withstand the possibility of some form of constitutional crisis? I am not sure we know that answer. But I think the consensus is that what ultimately emerges, be that Chavez’s current Vice President, Nicolas Maduro, or a leader from the opposition, raises the possibility of policy changes and even potentially an improved relationship with the U.S. An extended period of uncertainty about succession may lead to buying opportunities at lower levels. Ultimately, the market is telling us that a better governed Venezuela would potentially be a stronger credit,” Rodilosso said.
Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, including 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), LatAm Aggregate Bond ETF (NYSE Arca: BONO), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), International High Yield Bond ETF (NYSE Arca: IHY), Renminbi Bond ETF (NYSE Arca: CHLC) and Investment Grade Floating Rate ETF (NYSE Arca: FLTR). As of December 30, 2012, the total assets for these ETFs amounted to approximately $1.4 billion.
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Please note that the information herein represents the opinion of the portfolio manager and these opinions may change at any time and from time to time. This not a recommendation to buy or sell any security nor is it intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
About Market Vectors ETFs
Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family totals $27.9 billion in assets under management, making it the fifth largest ETP family in the U.S. and eighth largest worldwide as of September 30, 2012.
Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes. Van Eck Global has offices around the world and manages approximately $37.8 billion in investor assets as of September 30, 2012.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. The Funds' underlying securities may be subject to call risk, which may result in the Funds having to reinvest the proceeds at lower interest rates, resulting in a decline in the Funds' income.
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