EMERGING MARKETS-LatAm assets decline as markets weigh Venezuela upheaval

By Ragini Mathur and Twesha Dikshit

Jan 5 (Reuters) - Latin American assets retreated on Monday as investors weighed heightened risks following the U.S. capture of Venezuelan President Nicolas Maduro that triggered a flight to safe-haven assets, while regional stocks and Venezuelan bonds posted gains.

U.S. President Donald Trump said on Sunday, a day after Maduro was captured, that a second strike was possible if remaining members of the administration do not cooperate with his efforts to get the country "fixed".

Venezuela's international government bonds advanced as much as 7.5 cents to almost 9 cents on the dollar, TradeWeb data showed, reflecting investor optimism.

"We continue to like the Venezuela bonds. We have been advocating going long Venezuela bonds since Feb 2024. Bonds already reflect optimism, but still have room to grind higher as swift Maduro removal and U.S. support surprised on the upside, in our view," Citi analysts said in a note.

VENEZUELAN SOVEREIGN BONDS WERE LAST YEAR'S BEST PERFORMERS

The country's sovereign bonds, which went into default in 2017, were last year's leading performers globally, nearly doubling in price as Trump intensified military pressure on the Maduro regime.

Both MSCI's regional equities index .MILA00000PUS and the corresponding currency gauge .MILA00000CUS dropped 0.4%.

The Colombian COP= and the Mexican MXN= peso dropped about 0.2% and 0.1% each, with the latter used as a proxy for LatAm risk. Analysts said currencies of left-leaning governments throughout the region could face pressure.

Brazil's real BRL= was also down 0.2%, while Chile's peso CLP= was little changed.

"We anticipate a more limited near-term impact on oil prices and broader LatAm markets...though the episode could further differentiate performance, favoring countries perceived as more closely aligned with the U.S.," analysts at Morgan Stanley said in a note

Stocks across the region were broadly higher, with Peru's index jumping 2.2% as the metal-exporting nation benefited from rallying metal prices.

Indexes in Chile .SPIPSA and Mexico .MXX jumped 1.2% each. Meanwhile, Argentina's market .MERV declined as investors reassessed regional risks.

Beyond Latin America, emerging market investors welcomed Ethiopia's announcement of a preliminary restructuring agreement with bondholders.

The African nation's sole international bond gained about 2.4 cents to bid at 109.51 cents on the dollar according to Tradeweb data.