Top-performing Venezuelan stock market ‘uninvestable’

Political meddling and poor corporate governance means some emerging markets are ‘uninvestable’, according to Fidelity fund manager Nick Price.

One market that Price singles out is Venezuela, which was the fastest growing market in the first six months this year, benefiting from the news that president Hugo Chavez had fallen ill. 

‘We have nothing in Venezuela at all as it’s uninvestable. There’s a difference between gross domestic product (GDP) growth and returns and it’s very difficult to extract returns out of that market as equity investors,' he says.

‘It’s the political situation, and you’ve got to be very aware of what’s going on. Argentina fits the same bill, when you have the Kirchners running Argentina it’s very difficult to make money… you cannot make money at present owning businesses in those countries.’

Price is a Citywire A-rated manager who oversees a range of emerging market funds at Fidelity. The Fidelity Emerging Market fund has given a total return of 38.8% over the past three years, outperforming the MSCI Emerging Market index's total return of 32.8%.

He also warns investors to be careful when investing in Brazil, and is underweight the country. ‘Two of the major companies in Brazil are Vale and Petrobras. The government meddles and has their own agenda in owning those companies and as a result they’re not focused on driving shareholder returns.’      

Price says that in some cases the most attractive growth may not give the best returns. He explains: ‘People look at growth and sometimes overpay for the idea of growth as opposed to the reality of the returns. We’re focused on returns on business.

‘Typically when most people hear about emerging markets, they think about growth and the growth that countries like China and Brazil bring to the table but growth in itself is not necessarily a reason to invest in equities. You need to have the returns that come with the growth.’

However, the fund is invested in a number of Latin American countries. ‘We’re in Peru, Chile, Brazil and Mexico and bit of Colombia, so there’s plenty of opportunity. The focus in Colombia has been consumer related, and we’re doing some more due diligence on the biggest food retailer in Colombia. We have exposure to one of the banks in Colombia and some of the oil producers, like Pacific Rubiales.’