Markets Ready to Move on Venezuela Result

Venezuela had yet to announce Presidential election results late Sunday night, with analysts expecting the market reaction to depend both on the margin of victory and the behavior of the loser. “If [President Hugo] Chavez wins and the differential is very tight, the selloff might be contained. If Chavez wins by a wide margin, there could be a more pronounced selloff,” Boris Segura, economist at Nomura, tells LatinFinance ahead of the election. A victory by opposition candidate Henrique Capriles would likely mean a tightening of Venezuela and PdVSA credit spreads. Venezuela CDS could tighten 150bp-200bp on a Capriles victory, Segura says. The downside of a Chavez victory on CDS would likely be smaller, perhaps 50bp-100bp widening, he adds. Venezuela CDS Spreads were around 700bp Friday. It was difficult for analysts to establish a base-case scenario, with the polls in the country giving diverging indications leading up to the election. “The market has to some extent already priced a Chavez victory,” Goldman Sachs says in a report. “We would have to assume that the past week of credit spread tightening unwinds on the disappointment of a Chavez victory of around 50bp-100bp to 800bp-850bp on 5-year CDS,” Jefferies says in a report. The alternative scenario could mean credit spreads tightening 200bp towards 500bp on 5-year CDS, it adds. Results were expected late Sunday night, with local news reporting extended voting hours due to heavy turnout.