If markets are always right: Watch out Hugo!

August 2, 2004

I am not a believer that markets are always right and they predict the future, although I must say they sometime have an uncanny way of reacting ahead of the news. But I would like to find some meaning to the fact that the ADRís of Venezuelaís premier telephone company CANTV, actually went up today, as shown by its quote:






















































Last


 20.29


 


 


Open


 20.07


 


Change


 +0.32


 


Previous Close


 19.97


 


% Change


 +1.60%


 


Bid


 NA


 


Volume


 240,300


 


Ask


 NA


 


Avg Daily Volume


 206,200


 


Instit. Ownership


 28.3%


 


Day’s High


 20.29


 


52 Week High


 21.45


 


Day’s Low


 20.00


 


52 Week Low


 12.40


 


Notice that the stock closed at $19.97, went up 32 cents and was never below the closing price of last Friday.


 


Whatís weird about this? That President Hugo Chavez spent the weekend threatening to intervene the company if it tampers with the election results, going as far as saying that the decree to intervene the company was essentially ready.


 


News like this make investors very nervous and in the case of CANTV, its public stock is in the hand of mostly foreign investors led by Verizon, its largest stockholder, Telefonica de EspaŮa and more than 18,000 stockholders. It is definitely scary to even consider the possibility of the Government running CANTV again. In 1990, it would take on the average three tries to get a dial tone, one year to get a phone and many times your phone was in conference with somebody elseís phone permanently. The company was privatized and it is run fairly efficiently today.


 


It is puzzling why Chavez picks on CANTV, after all, the company already provided its network for the two elections in which Chavez won in 1998 and 2000 and it is only a partner of the company providing the voting machines, which is a newcomer to the game. But perhaps the reason is that that voting machine company was chosen by the pro-Chavez Electoral Board and Chavez does not want to undermine the credibility of a Board that has favored him at every step. CANTV on the other hand is foreign owned and many who are part of Government today, were against its privatization in 1990 and have failed to see the benefits of having it privatized.


 


But the remarkable thing was that the markets simply shrugged off the news completely, did not get nervous by the threats and the price of the stock actually went up! Is it because they know Chavez would not deliver on the threat? Or because they know Chavez will be out by the 16th? If markets are right and truly can predict the future: Watch out Hugo, you should be very nervous!

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