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There is joy in the Caracas Stock Market; and it seems that the feeling will keep up for a while, after a sustained rising trend has elevated its main index to historical levels.

Recently, the Caracas Stock-Exchange Index (IBC) surpassed the 30,000 barrier, an unprecedented figure in Venezuela. So far in 2004, the IBC -a compound of 16 stocks- has increased a historical 40.4%.

Nevertheless, the negotiated amounts in variable income, id est, in stocks, are still low in terms of dollars when compared to other stock markets in the region.

However, many wonder why the stock-exchange is rising the way it is. Many others never thought that this would ever happen after the August 15th referendum results; but the local and the international perception of the country is definitely different.

On August 17th -first day of stock-exchange operations after the referendum- the stock lost 6.61%, out of a massive sell-off of leading stock, whose prices had been rising during the previous days, amid expectations that the president would be defeated.

Later on, everything quieted down; and the market began to stabilize and to rise in a rally (for the first time this millennium), for some reasons that I shall try to explain.

Political Calmness

Investors are perceiving an atmosphere of political stability after the referendum that legitimated Chavez’ permanence in power until 2007. They also perceive that the allegations of fraud claimed by the opposition -regardless of whether they are true or not; a matter still to be clarified- have no hopes of succeeding. So there is no more choice than to move ahead and to leave the chapter of political turbulence behind.

In the specific case of the foreign investors, it seems that the sensation of calmness is even more consolidated. This is why they have begun to enter the market, but through bonds in dollars (ADR’s) due to the currency exchange control.

One of the major stock brokerage firms in the country reported to its investors that “it seems that investors, who only a few weeks ago felt as if they were navigating through a sea plagued with icebergs, now perceive that the waters are more peaceful than a children’s pool, with no visible clouds in the horizon”.

The report added that the stocks have risen ten times in the last few months, but in small volumes and with only a small group of investors, those who managed both to see through the thick veil of politics and to cash in on this abundance.

Undoubtedly, another factor that is influencing this stock-exchange rally are the low saving interest rates - those paid by the banks-, which have led a massive flow of resources to seek better channels for profit. For their part, the local fixed income papers have yielded negative profits, id est, below this year’s projected inflation.

Good Balances

Another factor that has triggered the stock is the extremely high liquidity, more than 36 trillion bolívares (Bs.), which exerts strong pressure on a market with almost no opportunities for investment. The accumulation of bolívares is intimately related to the over eighteen-month-long currency exchange control.

According to government officials of the “revolutionary” government, the idea is to have a more flexible currency exchange control in the future, with greater control over the capitals account but not over the current account.

Of course, now Miraflores (the presidential house) and the Ministry of Finance can bet on it, given the petroleum-related hyper-abundance and the soaring oil prices, which have filled the country’s treasury and expanded expenses.

For their part, many lagging companies are beginning to show more solid balances. As Sivensa, for instance, which after being thrashed, seems to be breathing again, and to recover part of the prominence it had lost years ago.

Meanwhile, banks seem to be earning much money, although the stocks in this sector vary much less because of the more concentrated positions. Some brokers claim that the great winners in this rally are those who have followed the supreme advice of the market, which stipulates that one must buy cheap when no one else is doing so. Now they slowly sell positions and guarantee for themselves juicy profits.

“The vast majority, that curiously awakened from its lethargy after the apparently disastrous August 15th referendum results, has no other choice left but to join this celebration singing «Living la vida loca» (“Living the wild life”) and leaving caution aside. There are no reasons for us to see this trend decrease in the next few days; prices should therefore keep rising, and everyday a different action should be «danced» ” , says the report.

Published in Quantum No.32