Caracas bourse leaps to life under currency curbs

Reuters, 05.26.03, 5:12 PM ET By Tomas Sarmiento

CARACAS, Venezuela, May 26 (Reuters) - Venezuela's small and long-dormant stock exchange broke the 10,000-point level on Monday, setting a record in an unexpected boom as local investors frustrated by tight currency controls sought alternative investment options. The Caracas stock exchange index <.IBC> rose 6.31 percent, or 618.98 points, to close at a record 10,429.27 points on the eighth day of a continuing rally. The index closed Friday at 9,810.29 points. It was the first time the tiny Caracas bourse, which had languished in the doldrums because of unrelenting political and economic turmoil in the world's No. 5 oil exporter, had broken above the 10,000-point barrier. The exchange has jumped 30.12 percent since the start of the year. Unable to turn savings into dollars because of foreign exchange curbs introduced more than 100 days ago, many Venezuelan banks, companies and individuals are now turning to the local exchange to try to gain a return on their swelling holdings in the local bolivar currency. "We're stuffed full with bolivars at the moment," said Geronimo Paolini of brokers Valores Vencred. However, the current boom in the Caracas exchange is purely locally driven as would-be foreign investors are unable to legally convert trading earnings back into dollars. Trading volume at the bourse, which is very small by regional standards, has averaged only around $110,000 a day so far this year. This compares with a daily average volume of $9 million three years ago, before Venezuela was seized by a fierce and often violent political conflict between opponents and supporters of leftist President Hugo Chavez. HIGH LIQUIDITY, LOWER RATES Nelson Ortiz, president of the Caracas stock exchange, said he expected the current boom to continue, fueled by increased bolivar liquidity and lower interest rates, which were the direct result of the currency controls. "Since the purchase of dollars has been blocked, money looks for another way out," Ortiz told Reuters in a recent interview. In Monday's rally, shares in Venezuela's biggest private steel-maker Sivensa <SVS.CR> surged 20 percent -- the maximum range allowed in a day's trading -- to 10.20 bolivars a share. Energy company Corporacion Industrial de Energia <CIE.CR> recorded a similar gain. Its shares closed at 13.2 bolivars. Shares in market leader CANTV <TDVd.CR> (nyse: VNT - news - people), Venezuela's leading telecommunications company which is controlled by U.S. telephone firm Verizon (nyse: VNT - news - people), climbed 12.9 percent to 3,500 bolivars. During months of instability last year, which culminated in a brief failed coup against Chavez, many investors had shunned the stock exchange, preferring instead to change bolivars into dollars and channel them out of the country. Capital flight accelerated during a crippling anti-Chavez strike in December and January which slashed oil output and exports but failed to force the populist president to resign. To stop this flight and a slide in the bolivar currency, the government halted currency trading in late January and fixed the exchange rate at 1,600 bolivars to the dollar. A state currency board, Cadivi, headed by an ally of Chavez, has been tightly controlling the allocation of dollars. Private business leaders say the curbs are starving the economy of hard currency, worsening an already deep recession. The economy contracted a record 29 percent in the first quarter of 2003 after shrinking nearly 9 percent last year. Copyright 2003, Reuters News Service