US Market Crushes… Panama Market Raises?

Panama, Casco Viejo
Casco Antiguo, San Felipe

Last week the world went bananas on the trade market. A rollercoaster that has more than one at the edge of a heart attack, it has been really worrysome for all of us to see gigants fall and take with them everything they can. Markets in Asia, Japan and Europe have been affected. As a journalist said, “when the US sneezes, the world catches a cold”. 

In Panama, however, things have been slightly different. The week closed at our very petit trade market with earnings. Banks have become more conservative and strict on their analysis of their clients, but they where very conservative from the beginning, so there wasn´t much of a surprise here. And even more surprisingly, according to today´s La Prensa article by Raul Bernal, the public trust on Panamanian economy has raised to 101.8 points, 11.9 points over last July, and between the bonus payments (in Panama you get 3 bonuses throughout the year) and the upcoming holidays, they expect the indicators to raise or at least keep the same level.

When addressing the “trust” issue on a radio program last week, Felipe Chapman, one of the most balanced economist I know in Panama and  vice-president of Panama’s stock and bond exchange, said that it is the basis of the entire economic pyramid. Without it, there is nothing, and where there was something, they just ignore it by putting everyone on the same basket. The public is untrustful of all these companies who have taken too much risks with their money. In some cases, they are completely right: some companies (and some clients!) where cowboys. But in others, as an analyst friend of mine pointed out, the market is punishing some companies that have performed very well, but since there is so much fear, they rather take everyone down. “And here is where I buy” he said. Why? because the fundamental value of the business is still there, it never changed. They´ll weather the storm and will still be there when everything corrects. And I will enjoy my earnings. And so he should: his vision was never fogged by general panic. With a cold mind, he disects companies into fundamentals (that include human behavior and economic analysis), take the noise out, the panic, emotions, and looks at logical future scenarios. And looks at what is really there now (which is equally important). Then, he makes a decision and buys.

Yesterday, I had a conversation with a client who rushed in absolute panic about the markets. Asking me a thousand questions about what to do with his property (he bought a very nice property which he intends to open commercially) and if I thought he would succeed.  And here is where I remember my analytical friend and mr. Chapman.  It is the same as analyzing a company in the stock market. Where and what are the fundamentals? of the country, of your particular business? why would Panama, the particular property you own and your business be still on the right side of the street, even when the world has dark clouds all over?

I told him, “look… I am not saying Panama won´t be touched by this economic disaster. What I trully believe is that Panama is a micro niche, and as so, the hurricane will be felt a little less here. This is where you are going to weather the storm better. Why? you have fundamentals here that are strong and very particular events that are lifting this economy and will continue to do so at least on the next 5 to 10 years.”.

One of the important things that Felipe Chapman pointed out in the radio program is that Panama never invested in the US subprime, nor on its mortgage packages. I guess because we are such a small country, or maybe because our internal market for mortgages is so strong, Panamanian banks just never did. Therefore, it won´t affect directly the Panamanian Banking system like it has happened in Europe and Asia.  Just there, you have a hugh advantage. We will be affected by a slowness in consumption from US and European clients. Or maybe with the weakening dollar, some other markets will open.

But even if those fail, we have two big elements doing the heavy lifting for the next 5 to 10 years: the Panama Canal Expansion is a reality and it is atracting a lot of people to relocate here to work in every level. The works are supposed to be done in 8 years, this country being Panama it will be 10.  We have also the oil refinery project in Puerto Armuelles, with almost double the investment of the Panama Canal Expansion. The second element is the relocation of regional headquarters of very important companies and institutions such as Dell, Caterpillar, Maersk, Procter and Gamble, Aventis, UNICEF, United Nation´s Food Programmee between others. Those guys move a lot of executives around the region and they are based in Panama.

If you think those three elements shouldn´t be enough to lift an economy, remember this: Panama has only 3 million habitants in the entire country. Probably the capital is a million! And growing, since we are receiving a lot of Venezuelans, which are relocating with their families and businesses. Just as it happened a 100 years ago when the Panama Canal was getting built, all the people relocating (not just “passing through”) will inject energy and resources into the country in order not only to survive but to make good living.

Going back to my friend with his property in Casco Viejo. If Panama as a country is one of your best bets to weather the storm, Casco Viejo within Panama (and I would almost say the region) is your best bet… period. If you have something unique, you are in far better position than having something “copy/paste”.  Unique, beautiful, historic, and in a site that invites to consumption as the ambiance is just delicious and full of textures.  Conveniently located 10 minutes away from the modern Panama City and 6 minutes away from the ex “Canal Zone” it is the best position to benefit from the Panama Canal Expansion, the tourism (internal or external) of Panama City. It is already the second tourism destination within the city (the first one is the Panama Canal) and the logic party and entertainment point for all those executives and families that have moved and continue to move down here. And since his business includes a lot of beer… my logical conclusion is that he´ll be just fine!

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