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Venezuela’s election 2012 and trading opportunities (from IKN140)

The following appeared in IKN140 for subscribers last Sunday (Jan 8th) as an article in the ‘Regional Politics’ section of The IKN Weekly and is a look at the upcoming Presidential election in Venezuela strictly from the point of view of a trader looking for a potential trade on the country. It’s a story we’re going to be following fairly closely through 2012 in the weekly, probably as from February or March when the race gets official and the campaigning starts for real. Last Sunday we set the scene for subscribers and that’s what happens here today. 
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Venezuela’s 2012 Presidential election and potential trading opportunities arising
Here’s a country that doesn’t get much feature in our coverage at The IKN Weekly, for the basic reason that it’s the worst place in The Americas to have junior mining exposure. However, we offer up a segment in this week’s ‘Regional Politics’ because for those of you with a penchant for risk, there may be coin to be made from the country this year.
The basic scenario is that on October 7th Venezuela holds its Presidential election to decide whether Hugo Chávez continues as President or whether the person chosen as his contender gets the job. We can expect the Chávez campaign to get into gear in February (he’s already announced he’ll go into full re-election mode as from February 4th) and in the same month, on February 12th to be exact, the opposition alliance known as “Mesa de Unidad Democratica” or “MUD” (that’s an acronym that should stick in your brain) will choose which of the heads of the parties that make up the alliance will face off against Chávez.
As for the opposition choice, there are five names being put forward at the moment, with the top two (the winner likely to come from one of these) being Henrique Capriles Radonski, current governor of the State of Miranda and Pablo Pérez Álvarez, current governor of the State of Zulia. Also in with a shout is Leopoldo López, as although Venezuela’s courts have ruled that he is ineligible to run, the Interamerican Court of Human Rights (CIDH) has ruled that he can (though it’s doubtful Venezuela will listen). Others with outsider’s chances in the opposition primary are María Corina Machado Parisca and Pablo Medina.
So in other words, for about six months of 2012 until the beginning of October with the race hotting up as we get closer to the finish line we’re going to have a pretty easily understood, straight race between Chávez in the Left corner and one of those five (I’d put my money on Capriles Radonski with a saver bet on Pérez) in the Right corner. So with the scene set, here are the points I wanted to make today:

• I think Chávez wins. Not only is his PSUV party a real heavyweight, well oiled (literally) political machine that is certain to run a strong campaign, but when push comes to shove he still has the approval or at least the non-disapproval of a big segment of Venezuelan society (after all these years, too). Added to this are the doubts that must be expressed about the unity of the anti-Chávez opposition, as the MUD alliance is made up of parties and factions that have a history of fighting amongst themselves. If the MUD alliance starts to fracture when the going gets tough, the unlikely will become the impossible.

• However, it’s not going to be a walkover for Chávez and my best guess (along with the guesses of the handful of people who know Venezuela better than your author that I’ve exchanged, discussed and conversed with in recent weeks on this matter) is that there may well be occasions when the opposition candidate gets upwards momentum and begins to look good in the polls (whether those polls be biased for or against, because both pro and anti Chávez trickery from pollsters for him and against him is a guarantee in this campaign).
• This is where the investment opportunity lies, because if it looks as though Chávez is in trouble during the campaign and enough people begin to think that the opposition candidate can win,Venezuelan exposed financial devices of all shapes and forms are likely to rally, and rally hard. Here at The IKN Weekly first thoughts always turn to junior mining companies, so issues such as Rusoro (RML.v) or Gold Reserve (GRZ) (GRZ.to) or perhaps even a tiny explorer that prefers to hide its exposure to Venezuela at the moment such as Valgold (VAL.v) with a tiny market cap of around $5m, but perhaps the real place to play any politically-charged move in Venezuela financial devices are its sovereign bonds being as they are highly liquid, they move decent amounts of money and are, financially speaking, the best way to get in and out of the country quickly and easily.
• But it’s not all that easy (it never is). For one thing, the opposition rally and “serious move” might not occur (though I and many others think it will). For another, getting the timing right on an entry point may turn out to be fiendishly difficult, as although I’ve pondered this question for these last few weeks (and polled on it too) it’s really tough to say exactly when we could see said opposition rally along the timeline of this 2012 campaign. Perhaps it’s March, perhaps later in May or June. Perhaps they’ll leave it til later on. Or perhaps there’ll be several occasions when the opposition looks in a stronger than expected position in the polls (be they rigged or unrigged). Also, timing the exit of any paper-successful trade will be tough too, as if you hang in there a little too long profits could be vaporized very quickly, or you sell too early and take a small profit, only to see the opposition surge a little more and serious money left on the table. 
In other words, what’s being outlined here is a risk trade. Not only that, it’s clearly not for those who like to buy and forget, because you’ll need to be pretty vigilant at the screen all the time on any Venezuela political risk trade. I’d really like to be able to get more specific on a possible timeline too, but it’s going to be too much of a flux to predict matters at this early stage. However, there does seem to be a set-up for interesting, volatile and potentially very profitable trading on the Venezuela 2012 elections starting to form. This initial headsup comes in January because I wanted to set the scene for the year before those February dates come up and the campaign starts hotting up. Rest assured this won’t be the last you hear of Venezuela political risk (as concerns trading in particular) in The IKN Weekly as the year unfolds.

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