Is Hugo Chavez ahead of the investment curve?
By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Venezuelan President Hugo Chavez plans to move billions of dollars of cash reserves from developed to developing countries, according to media reports. This may reflect politics, or the need to keep creditors sweet. But given the budget and bank woes afflicting the United States and the European Union, Chavez may not be alone seeking alternatives.
Chavez doubtless would have reasons for such a decision beyond the scope of typical investors. Russia and Brazil are likely to be more sympathetic to his policies than the likes of Switzerland and Britain, where much of Venezuela’s cash reserves currently sit. Some, notably China, also have lent the South American nation money and may be putting pressure on Chavez to relocate funds closer to where they can safeguard repayment.
This sort of portfolio management thinking won’t necessarily suit the investing masses. While China’s financial position is immensely strong, its banking system is less so. Lenders in the Middle Kingdom have ample liquidity but also are larded with potentially precarious property and transportation loans. Other nations in the BRIC clique have questionable financial positions and Russia’s financial services sector looks overly risky, to boot.
But that shouldn’t deter the redeployment of capital. The reasons behind the loss of Uncle Sam’s AAA credit rating and the EU’s debt crisis present potentially longer-term structural investment problems in those regions. American banks are still coming to grips with the mortgage crisis while European ones face large holdings of government debt. Economic growth in both areas is sluggish at best, giving further reason to consider portfolio diversification.
The interconnectedness of markets and economies makes it impossible to run far. Still, there are emerging markets, such as Malaysia, Taiwan and Chile, where the economic conditions and banking systems look relatively sound. Even some rich countries, including Canada, Australia and Singapore, seem more appealing given the current circumstances. Following the Chavez playbook is rarely a good idea, but in this case investors might be wise to take an asset transfer cue from him.