The Venezuelan stock market

On 9 January, the Caracas Stock Exchange closed nearly 19% down, with bonds also lower, after President Hugo Chavez promise to nationalise the biggest phone and power companies.

John Kelly, Abbey’s Head of Client investment looks at the situation. “For the global investor the fall in the Venezuelan stock market has to be put in perspective,” says Kelly.

“Before yesterday's events, the market capitalisation of the entire Venezuelan market was half that of BT and one tenth that of BP. Although the fall may have come quicker and more drastically than expected, the overall events that triggered them cannot have been a surprise. Chavez has been explicit in his intentions to introduce strong socialist policies in Venezuela.

“Along with the recent troubles in Thailand, the Venezuelan fall highlights the importance of assessing risks when investing. Although the current state of the global economy is supportive for investment, this is not a risk free world. Investors need to be sure that their appetite for risk extends to what can happen when things go wrong and not just when conditions are benign. This applies to geographic exposure and also to areas such as bonds where credit quality can be overlooked at supportive phases of the economic cycle.”