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First State EMD team exploits Venezuelan volatility

First State EMD team exploits Venezuelan volatility

First State Investments has made a short-term gain from a tactical bet on the Venezuelan market despite widespread volatility in the Latin American country.

In the latest update for emerging market debt team, First State said it had made further changes to its South American exposure.

This follows Citywire A-rated manager Helene Williamson, who is head of the EMD unit, buying back into Argentinian debt after selling out of all holdings at the start of the year.

With the country currently undergoing anti-government protests and tabling plans for a new FX system, Williamson’s team saw Venezuela as an attractive short term bet over the past month.

‘Despite news of violent anti-government protests throughout February, Venezuela (+8.29%) outperformed. Positive price action was driven by an announcement that the country would launch a new FX system, ‘Sicad II’,’ it said.

‘Sicad II is expected to allow individuals and companies to sell USD for more Venezuelan bolivars than the current regime will allow, effectively devaluing the local currency.’

First State said a devaluation provided some relief to the fiscal deficit but added to inflationary pressures for a country already battling annual inflation of over 50%.

While the long-term picture is not as attractive, First State saw an opportunity for some tactical trading. ‘We increased exposure to long-dated Venezuelan paper mid-month and took profits on this after the news of Sicad II drove a market rally.’

Elsewhere over the month, First State said it had increased duration in its emerging market debt funds but remained in a short duration position overall.

Recent additions included Brazilian state Minas Gerais and state-owned Chilean energy company, Empresa Nacional del Petroleo. First State said these represented examples of attractive quasi-sovereigns and corporates, which are the most compelling opportunities.

The First State Emerging Markets Bond I fund has fallen 1.6% over the year to the end of February 2014. This compares to a fall of 4.23% by its Citywire benchmark, the JP Morgan EMBI +, over the same period.

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Helene Williamson
Helene Williamson
10/19 in Bonds - Emerging Markets Global Hard Currency (Performance over 3 years) Average Total Return: 19.20%
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