Venezuela: World's Best Performing Stock Market In 2016?
Venezuela's Caracas Stock Exchange gained 114 percent in 2016, earning it the title of the world's best performing stock market. To keen investors up to date on global affairs and facts on the ground, this might not seem right.
According to a Bloomberg report, Venezuela's currency called the bolivar has plunged nearly 75 percent throughout 2016. Inflation, political upheaval and inflation which may have exceeded 1,000 percent resulted in the bolivar trading at 3,100 per one U.S. dollar.
In fact, the situation on the ground is so severe that foreign bankers have cancelled trips to visit money managers in Venezuela due to safety concerns.
However, Venezuela's official foreign-exchange rate has remained unchanged since March at 10 per dollar and this is the exchange rate that is used to determine the stock market's valuation.
Meanwhile, middle-class families are pouring into the stock market as a hedge against their crumbling currency - although this isn't a proper hedge as a 114 percent gain in the stock market implies a loss in value when factoring in the inflation rate.
CNBC reported in July 2015 that Venezuelan stocks soared 300 percent in the first seven months of the year. Similar to what is being observed this year, the stock market's gains isn't being met with cheers from the local population.
"Frantic investors are using the stock market as a vehicle to hedge against rapid currency devaluation. Better to hold stocks than bolivars, is the prevailing thinking," CNBC quoted Charlie Bilello of Pension Partners as saying in a blog post nearly a year-and-a-half ago.
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