Venezuela’s Mysterious Stock Inflows Leaving Traders Perplexed

(Bloomberg) -- Foreign investors are putting money into Venezuelan stocks.

Let that sink in a moment.

Yes, we’re talking about the same Venezuela with triple-digit inflation, food shortages and a lack of basic medicines. Where politics are so divisive that the Vatican is brokering mediation talks while opposition leaders remain in jail. The country that traders view as the most likely sovereign to default over the next year.

But that didn’t stop someone -- the data doesn’t show who -- from putting about $50,000 into the Caracas Stock Exchange between the U.S. presidential election and Nov. 30, according to EPFR Global and the International Institute of Finance. While that’s a tiny blip during a period that saw $34 billion in equity funds zip around the world, it’s the largest inflow Venezuela has seen in 16 months.

Most traders in Venezuelan stocks are locals desperate to hedge against the bolivar’s record collapse in the black market, and one of the abiding mysteries of the foreign inflows is what exchange rate the buyer got. Officially, the bolivar is fixed at about 10 per dollar, the rate an investor would probably pay to bring money into the market.

But tight foreign-exchange controls mean it’s nearly impossible to pull money out of the country at the same rate, leaving the investor stuck in the black market, where $1 costs 3,981 bolivars, according to dolartoday.com, a widely-watched website that monitors prices. It’s hard to imagine how anyone outside Venezuela could get profits out of the country.

"How bizarre," Anthony Simond, a London-based money manager at Aberdeen Asset Management who has followed Venezuela since 2010, said of the inflows. "Honestly, it’s not something I’ve ever looked at until today. I didn’t even know it was an investable market for foreigners."

To be sure, Venezuelan stocks are on a tear -- at least at the government’s official exchange rate. The devaluation in the black market caused the Caracas Stock Exchange to more than double last month, and it’s up 149 percent this year to a record. That’s the best performance among more than 90 equity gauges tracked by Bloomberg worldwide.

Leading those gains is Corimon CA, which bought the local operations of Bridgestone Corp. in May. The Caracas-based paint company’s stock has surged 2,814 percent this year while never exceeding 100 trades in a day.

"A few years ago, one would always pay a visit to the stock exchange during research trips," said Jan Dehn, the London-based head of research at Ashmore Group Plc., who has covered Venezuela for two decades. "Not any more."

To contact the reporter on this story: Ben Bartenstein in New York at bbartenstei3@bloomberg.net.

To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Lester Pimentel