Negative Outlook for Vene on Wide Chavez Victory

A wider-than-expected margin of victory for President Hugo Chavez in Venezuela’s presidential elections should mean increased pressure on Venezuelan assets, analysts say. With today the first session of open US markets following the election – which Chavez was estimated to have won by 10% – at least some degree of selloff was expected. “We expect a knee-jerk reaction of downward pressure on Venezuelan bond prices, and if President Chavez decides to deepen his ‘XXI Century Socialism’, we would expect Venezuela’s creditworthiness to erode further in the medium term,” Nomura says, noting the market had been positioning for a close election. “The victory by Chavez should weigh on Venezuelan bonds when U.S. markets reopen on Tuesday,” Citi says, expecting a 100bp-150bp widening. Others expect a smaller reaction. “It is difficult to expect much of a selloff considering that the closing credit spreads unwound most of the Capriles optimism as investors took profits ahead of the event,” Jefferies says, noting spreads had already unwound back to relative levels from when the elections were mostly viewed as a non-event.