Merrill Raises Venezuela, Cuts Colombia

Merrill Lynch has raised Venezuela to overweight in its external EM debt portfolio while scaling back Colombia to underweight. In Vene, the shop expresses a bullish view through the 2018 and 2020, but avoids the 2025. Merrill is essentially buying the dip after fears of a PDVSA glut were unfounded. It also sees upside in the inclusion of PDVSA in major indices used by clients, including the EMBIG, and the fact that some Venezuelans will remain invested. Vene continues to be underpinned by oil, which reinforces ability to pay. Part of this reallocation is funded by a switch out of Colombia 2037s, based on an expectation of possible profit taking at the long end. A trigger would either come from deteriorating external conditions or the return to headlines of the Territorial Transfers reform, says Merrill.