When you think of safe havens and offshore private banking centers, Switzerland, Dubai and Singapore probably come to mind.
I have been to Singapore many times and each time it gets a little bit better. Better infrastructure, better communication services and better tax and trade policies. That is its secret—constant improvement.
On the other side of the world, Central America has the potential to evolve into the mirror image of Southeast Asia, offering investors plenty of growth, progress and opportunity.
And while Southeast Asia serves as a bridge between China and India and the Pacific and Indian Oceans, Central America ties together North and South America and the Pacific and Atlantic Oceans.
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A couple of years ago I visited Panama and was taken aback with the size and sophistication of its cutting-edge financial center and business district.
This is why I call Panama the “Singapore of Central America.”
The Panama Boom
Even way back when I was a rookie banker with Banco de Boston, Panama was the destination of a lot of money and trade flowing between North & South America. The U.S.-Panama Free Trade Agreement has only deepened its rising financial and trade role in tying the two continents more closely together.
But the Republic of Panama is booming not just because of lucky geography—smart free-market, investment-friendly policies have also sharpened its advantages. Here are a few example:
- Panama’s currency is the U.S. dollar, and this makes investing in the country easy.
- Banking and communication services are world class.
- Panama has launched a five-year, $13.6 billion investment plan, focusing on schools, hospitals, sewerage, roads and metro transit system.
- There is no tax on interest earned from bank accounts for locals or foreigners.
- There are no corporate or personal taxes on offshore activity.
- Residents pay no local taxes on their foreign earned income.
- In Panama any legal resident may buy and own property. Retirees don’t have to pay property taxes until they sell their homes. On new homes there is a 20-year tax holiday.
The result of all this good stuff is an economy that has grown at a nice clip over the past five years.
Oh, I almost forgot to mention the doubling of the capacity of the Panama Canal.
The Panama Canal’s annual revenues have grown to over $2 billion (7.5% of GDP). That revenue produces a ripple of growth in many related businesses such as insurance, ship maintenance and repair, trade finance and banking. The canal and Panama’s business-friendly regulations have expanded big insurance, finance and legal offshore industries.
The free-trade zones in Colón on the Atlantic end of the canal and Balboa, Panama’s Pacific-side trade gateway, have become Latin America’s two busiest ports.
The growth of these two ports is accelerating following the canal’s $5.25 billion expansion project. It represents a double-barreled shot of growth because it doubled capacity and allows for much larger vessels to travel through the canal. These bigger “Panamax” ships will be longer and wider and deeper and able to carry double the cargo of ships currently using the canal.
This is one reason Colón has become the regional base of firms like Procter & Gamble (PG); two-thirds of the traffic through the canal is coming from or going to America.
The New York Times reports that the Port of Charleston in South Carolina is spending $1.3 billion over 10 years on improvements to handle the additional cargo from the canal and other routes, and soybean farmers from Illinois expect the expansion will help them compete with farmers in South America.
Two Ways to Invest in Panama
How can U.S. investors cash in on all that Panama growth?
One Panama stock that trades in the U.S. is the airline holding company Copa Holdings (CPA). Copa offers flights to 75 destinations in 31 countries in North, Central, and South America, as well as the Caribbean. The good news is that Copa Holdings continues to be one of the best operators in the business, with 89.7% on-time performance and 99.8% flight completion.
Trading at around 86, Copa’s stock is a way off its 52-week high of 144, but still I would wait for some more weakness before jumping in because its recently reported quarterly earnings were a bit of a disappointment, primarily due to weakness in Brazil and Argentina.
I also suggest you take a close look at Banco Latinoamericano de Comercio Exterior S.A. (BLX), more commonly referred to as “Bladex”.
Bladex, a multinational bank originally established by the central banks of Latin-American and Caribbean countries, began operations in 1979 to promote foreign trade and economic integration in the region. Headquartered in Panama, the bank also has offices in Argentina, Brazil, Colombia, Mexico, Peru and the United States.
My case for Bladex is that its core business is steady and safe trade finance that should grow nicely with increased canal traffic. The bank has sharply expanded business with Chile and Peru and a major goal is to increase its fee business from asset management and private banking.
Bladex recently reported a fourth-quarter profit of $20.7 million, compared to a loss of $40.7 million in the previous quarter, and its stock has responded nicely.
So put some Panama in your portfolio by adding one of these two Panama-exposed emerging market stocks. And if you ever get the chance, visit the Panama Canal—it’s a remarkable experience.
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