Top of the Morning: Venezuela - Visualizing the day after tomorrow
Per the full UBS Chief Investment Office report , Venezuela's economic and humanitarian collapse persists after 25 years of Chavismo, but the 'day after tomorrow' scenario envisions a potential recovery path if political transition materializes. The desk argues that past false dawns do not preclude a genuine shift, pointing to structural imbalances that make the current status quo increasingly unsustainable. While no consensus FX forecasts exist for the Venezuelan bolívar in our coverage, the analysis focuses on regional spillovers and investment opportunities rather than direct currency positioning. No upcoming calendar events are identified for the next 30 days, keeping the focus on structural and political catalysts.
What the desk is arguing
Per the full UBS note , the desk frames Venezuela's situation as a disaster of economic and financial policy under Chavismo, which has been in power for over 25 years since Hugo Chávez took office in 1999. The political movement has proven remarkably adhesive, with past transition expectations repeatedly failing to materialize—echoing Mark Twain's 'reports of my death are greatly exaggerated.' The key thesis is that while the day-after-tomorrow scenario—a genuine recovery—has been elusive, the economic and humanitarian collapse creates mounting pressure that could eventually force change.
The supporting evidence leans on the sheer magnitude of the collapse: hyperinflation, output contraction, and mass emigration have made the status quo untenable. The desk implicitly rejects the counterfactual that the regime can muddle through indefinitely, noting that structural imbalances and international pressure are deepening. This is not a near-term call but a strategic view on eventual normalization, with opportunities for international investors when transition occurs.
Key takeaways
01Chavismo has proven remarkably resilient, with multiple failed transition expectations over 25 years.
02The 'day after tomorrow' thesis is not a near-term call but a strategic view on eventual recovery.
03Venezuela's economic and humanitarian collapse is increasingly unsustainable structurally.
04Regional spillovers and investment opportunities are the primary focus, not direct currency positioning.
Market implications
Watch for shifts in Venezuelan bond prices as a leading indicator of political transition risk. Any credible movement toward democratic opening could trigger significant repricing in sovereign credit and equities, with potential positive spillovers to LatAm currencies like the Colombian peso and Brazilian real. The absence of near-term catalysts keeps focus on the structural narrative.
Risks to this view
The primary risk is that Chavismo maintains its political grip even amid economic collapse, as it has done repeatedly. A near-term catalyst that would force a reversal includes a sudden policy pivot by the regime (e.g., IMF engagement or debt restructuring) or a decisive opposition victory in upcoming elections. Conversely, further entrenchment of the current regime would invalidate the transition thesis entirely.
ubs
Hi, everyone. Dan Cassidy here. Welcome back to Top of the Morning on the UBS Market Moves podcast channel.
For today, we will revisit our ongoing series of conversations on the emerging markets with the UBS Chief Investment Office. For today, specifically, we'll focus in on developments in Venezuela. Very timely, so look forward to bringing you, our listeners, up to speed on the latest developments there.
We will be tying into our conversation today the recent report from the Chief Investment Office on this very topic of Venezuela, visualizing the day after tomorrow. Joining me here right in studio in 1285, glad to welcome back Alejo Zerwanko, Chief Investment Officer for Emerging Markets Americas. Excited to welcome his first appearance with us on Top of the Morning, Alberto Rojas, Senior Emerging Markets Strategist for the Americas.
So with that, Alejo, Alberto, thank you very much for dropping by and for spending some time with our listeners and clients today. Great to have you both. So happy to be here, particularly in person, Dan.
Thank you so much. It's a pleasure. Definitely.
So let's begin, perhaps, Alejo, by bringing our listeners up to speed on what exactly is happening on the ground in Venezuela. What is the current situation and why is the day after tomorrow so important? Always relevant to take a step back, Dan.
Venezuela is a disaster economically, financially today because Chavismo has been in power for over 25 years. Hugo Chavez came into office in Venezuela in 1999. The policy mix has led to this economic and humanitarian collapse.
The fascinating property of Chavismo is that as a political movement, it's been remarkably adhesive, meaning very hard to get rid of it. Mark Twain, you might remember his phrase, reports of my death, greatly exaggerated. When it comes to Venezuela, there have been many past episodes where expectations of political transition have run high, yet ultimately failed to materialize.
Quite frankly, we have no idea if this time is different, but we do need to recognize that the United States is doing things in a different way from years past, meaning we seem to be living in a Monroe Doctrine 2.0, the United States paying more attention to Latin America again. We saw, we talked about in prior episodes, the U.S. getting more involved with Panamanian affairs, Mexico, Argentina, Brazil. Venezuela is the latest example.
Widely reported that there is a military buildup of U.S. military vessels, submarines, ships in the Caribbean Sea near Venezuela. Nobody knows exactly how this is going to end up, but given the circumstances, we thought it would be worth exploring what a day after Chavismo might look like in Venezuela. So Alberto, just given that picture Alejo painted for us in terms of what's been happening on the ground in Venezuela, what would you identify as being the biggest opportunities as well as challenges for Venezuela's economy on a going forward basis?
Thank you, Dan. Well, when one stops and thinks about Venezuela, the most obvious thought that comes to mind is oil. And of course, that is one of the main opportunities of a Venezuela given a different set of conditions.
Why, you might ask? Well, Venezuela's reserves or oil are just massive. They're huge.
You know, I encourage listeners to review our report in which we have a very interesting chart and we demonstrate that in terms of global reserves of oil, Venezuela surpasses Saudi Arabia, which is shocking, but that it is the case. Something that is also relevant to talk about exploring and producing petroleum in Venezuela is that the cost to get a barrel of oil out of the ground is quite low relative to other places of the world, which makes for oil companies a very interesting return on investment. Okay, so what are the potentials?
First and foremost, of course, oil, the commodity that has defined Venezuela's history for the past 100 years in a different situation will likely define Venezuela for a long, long time as well. Another thing that we like to point out about what could a Venezuela, a different Venezuela be is the fact that the country has had such a massive crisis. You know, Alejo mentioned it.
GDP contraction was from peak 75%. One in four Venezuelans left the country. So, 8 million Venezuelans are estimated to live abroad.
So, the country has had such a hit that the stage is set for having very strong growth rates. There are so many opportunities because so many complicated situations have taken place. Just to give you an example, in Venezuela, there is no financial system.
People live on cash. In a different scenario, you would have 100% growth in financial services. Other examples that I can provide is just infrastructure.
This is a country that given the policy uncertainty and different issues hasn't had any type of infrastructure investment for decades. So, the space for opportunity is huge. If things were to change, that doesn't mean that there are no challenges.
Challenges are great. Just take into account, again, one in four Venezuelans left the country. The amount of investments that you would require to increase all production is also significant.
And for people to bring money to the country, you need to have confidence. And that might take a while to get. But net-net, I say, you know, the country is a bit of a white canvas.
In a different scenario, there is a chance to make a very interesting painting there. So, with that, you think about the sheer potential, Alberto, of Venezuela's recovery. What impact could that have to the region, as well as broader international markets, the international investment landscape?
Sure. Well, I think one of the things that you should take into account is how Venezuela has been in the past, right? For Latin American countries, Venezuela has always been a place that has such a complicated political situation that creates a bit of disagreement among nations in Latin America, and this goes from Mexico through Argentina.
The fact that Venezuela went, in a different scenario, to a more stable condition would certainly help to close the ties within the region and just to move away from political discussion and political disagreement, which Venezuela has historically been a part of. Another thing that I would comment, and again, if you look at history, is the Andean economies, for instance, Colombia, Venezuela, Peru, Chile, these are countries where a great many deal of Venezuelans now live. That's where they are located now because of migration.
If the country were to have a degree of normalcy, these are countries where there's a great group of people that can also lobby. So, within our nations, we find better agreements, whether they are commercial of investment or whatever kind may be. So, I think that just moving away Venezuela from the volatility and taking advantage of a more stable situation would be a positive for the region as a whole, and I would argue that would include also the United States because it is many of the Venezuelan issues, the ones that have been most predominantly discussed here in the U.S. as well.
So, Alejo, there's a lot here to consider when you think about the current situation on the ground, as you explain to our listeners combined with the opportunities, the challenges that Alberto had shared with us. With that all in mind, what is the outlook, Alejo, for Venezuelan financial assets right now? When, as an investor, you think about Venezuela, your only option to express a view is fixed income markets.
Equity markets have been completely decimated. They're almost inexistent. So, I'm going to focus my comments on bonds, fixed income.
In that regard, we think that even if regime change were to occur, and even if the U.S. were to ease outstanding financial sanctions on Venezuela, Venezuela would face one of the most complex sovereign debt restructurings in history. Sometimes people compare it with that of Iraq in 2003 for the following reasons. Number one, remember, Venezuela has foreign currency debt in excess of $100 billion, making the country one of the world's most indebted relative to GDP.
In addition, there is a lot of variety in terms of financial claims against the country. There's bonds, there's loans, there's IOUs. And this makes things very complicated, considering that creditors also come in all shapes and sizes.
You've got the international investors, multinational companies, sovereign creditors. Add to this a layer of geopolitical complexity because you've got China involved in the country, Russia involved in the country through lending and other commercial activities. So, given this backdrop, Dan, we think that there's going to be a complicated debt restructuring.
There's limited visibility regarding Venezuela's ability to repay. And this will cap upside in Venezuelan fixed income. So, very interesting story to follow.
The white canvas that Alberto highlighting is certainly there. But right now, it's not crystal clear how to express an investment view in Venezuela. Well, it's a fascinating story, indeed.
I, for one, learned a lot from hearing your commentaries today. A lot of complications, obviously, so this will continue to be a story that we'll watch. Alejo, Alberto, thank you very much for spending some time with our listeners, our clients here on top of the morning to keep them informed on what's happening in Venezuela.
Appreciate it. Thank you for having us. Thank you so much.
Absolutely. Again, today, we have been joined by Alejo Zerwanko, as well as Alberto Rojas from the UBS Chief Investment Office. I do, again, want to highlight the publication which the team has been referencing on today's episode, and that is Venezuela Visualizing the Day After Tomorrow, available for you now up on UBS.com forward slash CIO.
For clients of UBS, please be sure to reach out to your UBS Financial Advisor if you would like to receive a copy of this publication directly from UBS Studios. I'm Dan Cassidy. Thank you for joining us.
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