November 29, 2006 – Many Latin American countries, for decades, exploited by imperialist nations, are now at a tipping point between the poor and moneyed elite. In Mexico, there is great unrest between the poor and upper classes. In Venezuela, divisions of opinion regarding incumbent Venezuelan President Chavez have created a nation on edge. “You’ll find siblings who no longer speak to each other because one supports [President Hugo] Chavez and the other doesn’t,” commented a man from the upscale neighborhood of Altamira. Yet another Venezuelan citizen, a Chavez supporter, stated, “They absolutely hate him in these middle-class places.” Yet it would be much too simple to say that all poor people support Chavez and that all rich people hate him.
There are many wealthy Venezuelans, the nouveau riche, that publicly state their opposition to Chavez but will most likely vote for him come December 3rd anyway. Why? Because their wealth was built entirely under Chavez’s policies. However, many businesses, both domestic and foreign, fear expropriation under Chavez’s rule. In Ecuador, the government recently expropriated Occidental Petroleum’s assets, and in recent Peruvian Presidential elections, a candidate nearly won on a platform of nationalization. In Venezuela, while the media mostly focuses on expropriation of big oil assets, the threats run far wider. For example, President Chavez recently threatened to expropriate Coca Cola’s assets if Coca Cola does not concede to the locals’ demands for social benefits.
The last time such nervousness existed, telecomm stocks in Venezuela plummeted by 12%. Certainly there are many very well capitalized commodity companies in oil and precious metals in Venezuela that may soon experience a similar flight in capital if investors become too nervous regarding the uncertainty of Chavez’s next move. However, there is an important counter to this blog entry. The media almost always tends to overstate risks abroad, as was the case during the military coup in Thailand (that, by the way, provided a great opportunity for savvy investors), and the proclaimed devastating affects of the Bolivian nationalization of the gas industry (which turned out to be not so devastating).
Even when it comes to State Department warnings, the dangers presented by travel advisory warnings are often exaggerated to the 10th degree. Furthermore, I don’t know if it just happens to be the articles that I have read about Chavez, but in well over 70% of the photographs I’ve seen of President Chavez, he has been dressed in military fatigues or is engaged in an angry animated gesture.
During the civil rights movement in the 1970’s, when certain elements in the media wished to discredit Malcom X, one would not have found a single photo of him smiling, laughing, or playing with his kids in the newspapers. Based upon the photos of Malcolm that appeared in the media, one would have thought Malcom to be a perpetually angry and furious man. That was hardly the case. As an investor, one must be aware of media bias, and how it influences one’s decisions regarding investing in world markets – whether this influence is positive or negative.
That said, the risk in Venezuela, though it may be somewhat overhyped in the media, is nevertheless real and merits close monitoring. Certainly all investment eyes are on Chavez, who is roundly expected to retain his power in the December 3rd elections, and the implications of the next implementation phase of his self-proclaimed “ revolucion”. How great this risk is to foreign investors is yet to be determined.
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J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.
