How to Invest in Panamanian Stocks and Real Estate

Considered both a part of the Caribbean and Central America, Panama's US-dollar-based economy is strongly supported by the services sector. Prior to the COVID-19 pandemic, in 2019, the World Economic Forum ranked Panama's economy 66 out of 141, with a GDP of 15.679 billion and a ten-year average annual GDP growth of 5.7%.

Panama's global trade was seriously affected by the pandemic and the country's gross domestic product ("GDP") contracted 17.9% in 2020. However, the country remains well-positioned over the long run with its dollarized economy and strategic ownership of the Panama Canal.

In this article, we will take a look at some of the benefits and risks associated with investing in Panama, as well as some strategies for investors to buy equities and real estate in the country.

Benefits and Risks of Investing in Panama

Panama has become one of the most stable countries in Central America following its somewhat tumultuous history. The country is now home to one of the world's most significant waterways—the Panama Canal—as well as a rather solid service-based economy. As a result, the country has been a pillar of economic success in the region and an important international investment destination.

Benefits of investing in Panama include:

• Sound legal system: Panama's legal system has been developed to support foreign investment. For instance, Article 44 of its constitution guarantees the protection of private ownership of real property and private investments.
• Strong economy: Prior to the pandemic, Panama's economy averaged a 5.7% annual GDP growth over a 10-year period. And despite the recent slowdown in global trade, their economy is showing signs of recovery.

Risks of investing in Panama include:

• Dependence on global trade: Global slowdowns may hamper the country's economy, given its reliance on the tourism and service industry as well as the Panama Canal, which is the main hub of international trade and off-shore banking.
• Political issues: While Panama's economy is relatively stable, relative to others in Central America, the country still struggles with political corruption and other issues that may cause reduced confidence on the part of investors.

Investing in Panama's Real Estate Market

Panama is best known by investors for its thriving real estate market. The country's real estate boom has been largely driven by the Panama Canal, along with construction in the Panama Pacifico Free Zone. According to the 2018 press release, there are several large transportation and infrastructure projects in the works, such as the expansion of the Panamerican Highway, a billion-dollar fourth bridge over the Panama Canal, and a third metro line to benefit more than 1.7 million people.

The market has also benefited from tourism, which accounts for a significant portion of its service economy. Prior to the pandemic, the country was on the right track. Ranking fourth in travel and tourism in Latin American and the Caribbean, the number of international tourists that visited Panama exceed 2.5 million in 2019. But once the pandemic hit, tourism dropped by almost 70%. Given the previous success, Panama's tourism industry is expected to recover.

Investors interested in capitalizing on this market can find many Panama-based real estate companies, as well as law firms specializing in real estate transactions. Given the differences in real estate laws, compared to the United States, investors are encouraged to seek the help of a professional before completing any transactions.

Investing in Panama's Stock Market

Panama's stock market—Bolsa de Valores de Panama—has also been rather successful over the past years. As of 2021, the stock exchange has 214 registered companies with a domestic market capitalization of $17,274 million.

Investors looking to trade these individual stocks may consider American Depositary Receipts ("ADRs") or foreign brokerage accounts that permit trading directly on foreign exchanges.

Investing in exchange traded funds (ETFs) with significant holdings in Panamanian companies is not an option—there are no ETFs with more than 2% exposure. As a result, investors may be forced to invest directly in the Panamanian stock exchange.

Resources for Investing in Panama

Investors looking to invest in Panama's real estate or stock market should consult licensed professionals before proceeding. However, official channels also offer practical advice and guidance for any investors looking to learn more.

Here are some resources to get started:

• Bolsa de Valores de Panama
• International Trade Administration, Panama Special Economic Zones Overview
• U.S. Department of State Report—2019 Investment Climate Statements: Panama

The Bottom Line

Panama remains an important destination for international investors looking for a stable economy that's well-positioned to capitalize on global trade. While the economy has suffered in recent years, the long-term prospects remain strong for investors considering equities or real estate. Despite these strengths, investors should carefully consider the risks associated with the country before investing, particularly its dependence on global trade for GDP growth.