Venezuela is now world's 5th largest equity market; m-cap near $3 trn mark

Despite political instability, the country's benchmark has been the best performer in the world

Venezuela has emerged as the world’s fifth-largest equity market in terms of market capitalisation (m-cap) even as the country reels under political turmoil.

The South American nation currently has m-cap of $2.7 trillion — bigger than developed markets like Germany, France and the United Kingdom.

The Venezuelan benchmark index IBC has surged nearly six times in 2017 in dollar terms — by far the best performing benchmark in the world.  

Not surprisingly, this exuberance is not on account of an economic miracle but a combination of hyperinflation and foreign exchange controls in Venezuela.

Ever since the death of iconic leader Hugo Chavez, the nation has been reeling under huge political uncertainty. Collapsing oil prices since 2014 has led to a free fall of the economy. In order to make up for the slump in the economy and provide stimulus, the government started printing more and more currency.

This rich supply of Venezuelan Bolivar led to a dramatic decrease in the value of money, in other words, hyperinflation. According to an analysis by the International Monetary Fund (IMF), the inflation of Venezuela could be around astonishing 43,000 per cent.

In an ideal case, this rise in the local currency terms would not have translated into impressive gains in dollar terms as such abundant availability of the currency could lead to a slump in the exchange rate.

However, since the government of Venezuela controls the currency exchange, the country has officially locked the exchange rate. In the unofficial market, the value of dollar is 900 times more than the official rate of Bolivar. At that rate, the mcap of Venezuelan translates into just $3 billion.