Venezuela investors reportedly are undeterred by a near-certain debt default of the embattled nation.
To be sure, emerging market bond fund managers also are dismissing concerns over morality to buy Venezuela’s high-risk bonds.
“But amid mounting expectation that future defaults are inevitable as the crisis-ridden country’s coffers run dry and protests against the increasingly authoritarian government mount, some investors now believe the strongest returns may come from longer-term paper,” the Financial Times reported.
“The backdrop suggests we are moving closer to a credit event. The government is becoming more dysfunctional, the protests are becoming more fevered and it does feel like there could be splits in the government and military,” Kevin Daly, an emerging market debt specialist at Aberdeen Asset Management, told the FT.
Meanwhile, Goldman Sachs Group Inc. has confirmed it bought Venezuelan bonds after being excoriated by the country's opposition for financing the embattled government of President Nicolas Maduro, who is facing sustained protests, Reuters reported.
The president of the opposition-led Congress accused the bank of financing "dictatorship" after the Wall Street Journal reported Goldman had bought $2.8 billion in bonds issued by state oil company PDVSA at a steep discount.
With Venezuela's inefficient state-led economic model struggling under lower oil prices, Maduro's unpopular government has become ever more dependent on financial deals or asset sales to bring in coveted foreign exchange.
Many economists say the only way to improve the country's situation is to scrap price and currency control systems that have hobbled the private sector.
But in late April, Venezuela and PDVSA made $2.6 billion in bond payments, the OPEC country's vice president said, fulfilling heavy debt service that has contributed to the country's economic crisis, Reuters reported.
President Nicolas Maduro's government has met commitments to Wall Street investors for years by slashing imports of basic goods such as food and medicine, spurring chronic product shortages. Maduro says the country is victim of an "economic war" led by opposition businesses.
Venezuela's bonds are the highest-yielding of any emerging market security due to concerns about default.
Maduro has dismissed default talk as a smear campaign against his administration.
To be sure, Yong Zhu, senior portfolio manager at DuPont Capital Management, believes any future Venezuelan government will honor its debt because it would in essence be paying for continued access to the global capital market
Venezuela is scheduled to spend almost as much money servicing the debt this year, around $10 billion, as it will spend on all non-oil imports, including food and medicines, according to Nomura.
“That’s not how the financial markets work. There are countries that need our money. We help them develop and we expect them to pay, and if they have difficulties we can talk. I think at this point the government can do a better job,” Zhu said.
Newsmaax Finance Insider Mohamed El-Erian has pondered the Venezuelan debt quandary in a recent Bloomberg View column,
"To hold or not to hold? That is the dilemma facing holders of debt issued by the Venezuelan government and its sovereign and quasi-sovereign entities," El-Erian wrote.
"Over the longer-term, most socially-responsible investing is likely to translate into profitable ones, too. But in the short-term, deviations do occur. Venezuela is a case in point," El-Erian wrote.
"And the resulting dilemmas, as important as they are, should not be left to portfolio managers alone who then find themselves torn between a narrow definition of fiduciary responsibility and legitimately consequential broader issues. It is high time to make governance structures more responsive, assertive and transparent on these issues."
(Newsmax wires services contributed to this report).
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