Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

Venezuela Stock Market in Bubble Despite Economic Crisis and Higher Inflation Rate

1 min read

When a country is facing multi-year economic crisis , inflation is skyrocketing to 741%, Interest Rates increased to 21.78% and the entire country is going through a very complicated tough situation, What do you think how the stock market would perform? Generally speaking, the stock market will reflect the economic conditions of an economy. right? But what if the the entire economy in crisis, stock markets created a historic bubble?

Venezuela’s Caracas Stock Exchange Index IBVC hit record 47,000 on last friday. Since the start of 2014 IBVC index had returns a whooping 1618% which should ideally reflect the economic boom of any country. We are told that stock market index are often forward looking but in this case despite continuing multi-year crisis, stock markets are in the formation of historic bubble. Year to date index made a gain of 48.34% and last 1 year IBVC index had gained nearly 200.33% and where the country’s annual GDP rate is decelerating at 18.6%

Venezuela Stock Index IBVC – (Log Scale)


Venezula Exchange Volume Skyrocketed between 2015-2016 Period

What made the Venezuelan stock market to go higher?

Venezuela’s stock market movement largely reflects the collapse of Venezuela’s currency, the bolivar. When a currency experiences strong and rapid depreciation, investors naturally turn to gold or foreign currencies to hedge against wealth erosion. With gold in short supply and strict capital controls imposed, middle-class families and investors are pouring into the stock market as a hedge against their crumbling currency.

Bloomberg reports ‘Foreigners are almost completely absent from Venezuela’s stock market because of the difficulty they would have getting money out of the country legally.’

Venezuela Economic Crisis Explained

Venezuela Interest Rate

Source : TradingEconomics

Will this bubble go parabolic further?
This is a impending bubble and the markets are largely driven by retail investors rather than by funds or asset managers. Bubble will start crumbling when investors find stock market index are getting toxic to invest further or when they find alternative safe haven investment vehicle to invest. Already volume are getting thin compared to 2015 and 2016 which indicates that less and less people are interested in participating at this juncture.

Rajandran R Telecom Engineer turned Full-time Derivative Trader. Mostly Trading Nifty, Banknifty, USDINR and High Liquid Stock Derivatives. Trading the Markets Since 2006 onwards. Using Market Profile and Orderflow for more than a decade. Designed and published 100+ open source trading systems on various trading tools. Strongly believe that market understanding and robust trading frameworks are the key to the trading success. Writing about Markets, Trading System Design, Market Sentiment, Trading Softwares & Trading Nuances since 2007 onwards. Author of Marketcalls.in and Co-Creator of Algomojo (Algorithmic Trading Platform for DIY Traders)

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