by Carl Delfeld, Global Markets Strategists, The Oxford Club
Thursday, February 21, 2013: Issue #1975
As I prepare to head to Southeast Asia for three weeks with an Oxford Club group, my thoughts strangely turned to a region much closer to my home in Colorado.
I see Central America as the mirror image of Southeast Asia. It’s a collection of fascinating countries offering investors plenty of growth, progress and opportunity… Minus the jet lag.
Southeast Asia serves as a bridge between China and India and the Pacific and Indian Oceans. Central America, on the other hand, ties together North and South America and the Pacific and Atlantic Oceans.
And at the heart of this region is the “Singapore of Central America” – Panama.
Recently, the United States-Panama Free Trade Agreement passed. That will deepen Panama’s rising financial and trade role in tying 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 sharpened its advantages:
- Panama’s currency is the U.S. dollar. This makes investing in the country easy.
- Banking and communication services are world class.
- Panama launched a five-year, $13.6 billion investment plan, focusing on schools, hospitals, sewerage, roads and metro transit system.
- Panama’s import tariffs are among the lowest in Latin America. Also, the country has received foreign direct investment worth nearly 9% of GDP.
- Panama is a well-regarded tax haven and its 130 banks offer a high degree of privacy.
- 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.
The result of all this good stuff is an economy that’s grown at an 8% clip over the past five years. A construction boom is also changing the landscape of Panama City. There are dozens of office towers going up, including the Trump Ocean Club and Latin America’s first Waldorf Astoria hotel, which was opened last year – the Panamera. 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). Traffic and revenue were up about 25% in 2011. This produced 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.
Last year, the free-trade zone in Colón – on the Atlantic end of the canal – and Balboa, Panama’s Pacific-side trade gateway, became Latin America’s two busiest ports.
Get ready for the growth of these two ports to explode soon after the canal’s $5.25 billion expansion project is completed in 2014. It’s a double-barreled shot of growth. It doubles capacity and allows for much larger vessels to travel through the canal. These bigger “Panamax” ships will be longer, wider and deeper. They’ll carry double the cargo of ships currently using the canal.
This is one reason Colón’s become the regional base of firms like Procter & Gamble (NYSE: PG)… Two-thirds of the traffic through the canal is coming from or going to America. The New York Times reports 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. Dean Campbell, a soybean farmer from Illinois, expects the expansion will help him compete with farmers in South America.
To get a piece of this growth, look at what I call the “Panama Proxy” – Banco Latinoamericano de Comercio Exterior S.A. (NYSE: BLX), more commonly referred to as “Bladex.”
My case for Bladex is that its core business is steady, and safe trade finance should grow nicely with increased canal traffic. The bank sharply expanded business with Chile and Peru. A major goal is to increase fee business from asset management and private banking. BLX has delivered its investors a total average return of 33% per year over the last 10 years. And last year, Fitch upgraded its credit rating due to a better balance sheet.
BLX is trading right at book value and nine times forward earnings. BLX is up 19.5% over the past year and sports a nice 4.5% dividend yield. For 2012, the bank earned net income of 93 million, or $2.46 per share. Fourth quarter net income was up 89% over the third quarter, handily beating analyst expectations.
I hope my next overseas trip is to Panama.
The Singapore of Central America is Booming,