Venezuela Stock Market Falls Only 8% During 2008

Venezuelan stocks joined the worldwide drop in prices during the year, but the Caracas Stock Index, which closed the year at 35,090, was one of the best performers, dropping only 8.01% in 2009, thanks to the quirks introduced in stock prices by exchange controls and Government intervention in the companies that trade in the local exchange.

The market was saved by the sharp rise in Government controlled Electricidad de Caracas and CANTV. Both these stocks rose over 50% in local currency in 2009 (which was basically the same as in US$ as the swap exchange rate barely changed for the full year), as the Government announced that it would tender for the shares not in its hands, after reaching an agreement with Renaissance Capital to purchase its 3.6 million ADR’s in that company. But these tenders have yet to materialize, as the Government seems to announce an ever increasing numbers of nationalizations, which are never completed.

On the downside, bank stocks suffered the most as the Government imposed an ever increasing number of restrictions on financial institutions and despite most banks maintaining impressive levels of returns.

Fábrica Nacional de Cementos rose 29.5% for the year on the news that the Government had reached an agreement to compensate the shareholders for the nationalization of the company, while H.L. Boulton rose 11.1% for the year on little news. Stocks on the downside for the year were led by Banesco, down 53.6%, Banco Provincial down 49.1%, despite consistently being the number one bank in the country in profits, Mercantil Servicios Financieros B, down 47.3% and Cemex Venezuela I and II, down 36% and 32.6% as the Government nationalized the company and was unable to reach an agreement on compensation. Cemex Venezuela shares would likely be much lower if the trading of the shares had not been suspended in early August and as after this date the Government suspended the payment of a three dividends that had been approved by the shareholders.

Sentiment into the New Year is very negative as not only are Government policies quite negative for local companies, but Venezuelans are bracing themselves for the negative economic effects of the sharp drop in oil prices as the Venezuelan Government seems to be postponing decisions. While some stocks are very attractive in terms of valuations, prices are likely to drop much further, before any sort of bounce can take place.