How to invest in Panama

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How to invest in Panama

In the past 20 years, Panama has grown substantially and has largely shed its reputation for ‘cocaine towers’ despite many people’s antiquated views.  Income per capita is up 4x, the population is up 50%, and the stock market is up almost 6x.  Panama City is arguably the most developed city in Central America with a metro and international airport handling 16mm passengers annually.

The fact box below summarizes Panama’s current position. 

 

 

 

Panama for a variety of reasons offers an interesting opportunity for foreigners to invest.  Panama is a trading nation, largely driven by trade activities associated with the Panama Canal, but it is also a financial center given the attractive business climate that makes it an offshore tax haven.  Exports are widely diversified and are shown below.

The stock market has been listless for the last few years, largely driven by the crackdown on money laundering and the subsequent financial controls that have created challenges for Panamanian-listed companies.  The fact box below provides an overview of the stock exchange.

The stock market over the past 20 years and GDP growth are shown in the figure below.  They have moved largely in lockstep with one another.  You can see that the equity market is poised for material growth as Panama enters a new business cycle.

The companies with a market cap of over $50mm are listed below.

The listed companies are dominated by financials, which explains the poor performance of the index, 87% of the current market cap is in financials.  The market is flat over 5 years and all companies have performed poorly.   This has sucked liquidity from the exchange and average turnover is now slightly below $20mm.  We think it is an interesting time to invest in Panama, the expansion of the Panama Canal has been completed, there is a lot of construction continuing throughout Panama City, there is plenty of free trade discussions going on, including with China, and as Venezuela collapses, Panama City continues to grow as a safe haven for Venezuelans.

Can Foreigners Invest?

Yes.  There are virtually no restrictions on foreign investment in Panama, it is one of the easiest processes anywhere for getting set up and ready to trade.  You can opt for a self-directed account, or for an investment advisor-directed account.

How to set up an account?

There are broker members of the exchange, any of which can be used to set up an account.  The full list is available here.  Once a selection is made for which broker you would like to use, you will have to provide some additional information that was previously not required due to AML regulations that came out subsequent to the infamous “Panama Papers.”

The list of items generally required are:

  • Passport
  • Completed application form
  • 2 banking references
  • Source of funds declaration

Once all this information has been submitted to your broker, expect to be ready to trade within 5 business days and you should be able to wire money from your account of choice in a relatively easy way.  Keep in mind that depending on your own tax domicile, you may have to declare all investments made in Panama.

Other ways to invest?

The simpler way to invest in Panamanian equities is to invest in the PowerShares Frontier Markets ETF which has a 10% weighting to Panama.  However, this exposure is not guaranteed and could change as the ETF’s strategy shifts or changes.  There isn’t really any stand-alone Panama ETF that actually has float and is accessible.

If you’re considering investing in Panama, real estate is also another option.  PwC’s guide on Panama is certainly amongst the best.

As always, if you have any questions, please let us know.

 

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