The Intelligence Report – 6 November 2017

06 Nov 2017

  • My cousin Vennie – On Thursday evening, in a televised state address, President Maduro announced that Venezuela was restructuring its debts. We will argue that recent events raise more questions than answers, and that there are significant uncertainties surrounding Maduro’s real intentions.
  • Communist Party Congress opens a new era for China – China’s 19th Communist Party Congress ended on October 24. We will review changes in the composition of the Standing Committee of the Politiburo (SCP), and analyze the potential implications for growth, structural reform and debt reduction.

Markets are imperfect discounting mechanisms; all-too-often apparently well-anticipated events still have the capacity to surprise when they actually occur. On Thursday evening, in a televised state address, President Maduro announced that Venezuela was restructuring its debts. Most EM investors expected a Venezuela default, but had either expected this to occur last year, or were expecting this to happen in 2018, or later. The timing caught the markets off-guard, and Venezuelan debt prices fell sharply on Friday. In the first of our articles this week, Bryan Carter argues that recent events raise more questions than answers, and that there are significant uncertainties surrounding Maduro’s real intentions, the orderliness of the coming restructuring, the response of the US, benchmark providers’ treatment of affected debt, and the status and effective subordination of marketable debt issued by the sovereign, or by the state-owned oil company, PDVSA.

China’s 19th Communist Party Congress ended on October 24. In the second of this week’s articles, Chi Lo reviews changes in the composition of the Standing Committee of the Politiburo (SCP) announced on the following day at the First Plenum, and analyses the potential implications for growth, structural reform and debt reduction over the medium term of this shift towards a more pro-reform SCP.

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