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Market Vectors’ Fran Rodilosso On Uncertainty And Market Sentiment Surrounding Venezuelan Debt

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.

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