Venezuela Devaluation Having Mixed Impact on ETFs
After announcing a 3.3 percent increase in January inflation earlier today, the Venezuelan government has announced it will devalue the bolivar to 6.3 per U.S. dollar from 4.3.
Venezuela, a member of the Organization of Petroleum Exporting Countries (OPEC), is grappling with rampant inflation, which may have prompted the currency devaluation.
Venezuela's inflation rate was 20.1 percent last year, its best rate in four years, but still one of the highest in Latin America, Reuters reported. Despite the new exchange rate, there is speculation that U.S. dollars are commanding 16 to 17 bolivars on the black market.
News of the bolivar devaluation is having an curious impact on various exchange traded funds. While there is no Venezuela-specific ETF on the market today, there are several that offer exposure to Venezuelan bonds.
The iShares Emerging Markets High Yield Bond Fund (NYSE: EMHY) is actually trading slightly higher on below average volume, a situation some traders may see as odd given EMHY's almost 18 percent allocation to Venezuela.
The Market Vectors LatAm Aggregate Bond ETF (NYSE: BONO) is off half a percent and trading at its lows of the day, though it should be noted the ETF was already trading to the downside before the Venezuela news hit the wires. Venezuela has a 7.75 percent weight in BONO, putting it well behind Brazil, Mexico and Colombia.
One ETF that moved lower immediately following the bolivar news might come as a surprise to some. The Consumer Staples Select SPDR (NYSE: XLP) was dragged lower by declines in consumer products giants Procter & Gamble (NYSE: PG) and Colgate Palmolive (NYSE: CL).
Last August, P&G warned that it was bracing for a bolivar devaluation. P&G and Colgate took earnings hits in 2010 when Venezuela last devalued its currency. Venezuela accounted for about one percent of P&G's 2011 revenue.
P&G and Colgate have had their share of trials and tribulations in Venezuela. Several years ago, Venezuela's consumer protection office announced it was investigating the two companies, alleging they failed to comply with government price controls on select household items.
The two stocks are top-10 holdings in XLP, combining for 17.7 percent of the fund's weight.
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