ON THE BOURSE

Panama 2014 | FINANCE | REVIEW: CAPITAL MARKETS

Panama's robust economy, capital market framework, and political environment have proven conducive to development.

Established in 1990, at a time when Panama was mired in epic political and economic turmoil, the Panamanian Stock Market (BVP) is a self-regulated entity overseen by the National Stock Market Commission. The project came to fruition when state and private enterprise linked arms in pursuit of urgently needed capital flows that only a more comprehensive capital market could consistently provide. As the bourse itself explains, state-owned National Bank of Panama was a key player in realizing the project, given that it harbors certain features of a central bank. In the process of maximizing its offering, in 1997 the BVP launched a securities liquidation and custody body, namely the Central Latinoamericana de Valores, providing electronic clearing and liquidation services for all bourse operations minimizing operational risk.

On June 26, 1990, the BVP held its first trading session. Trading takes place today from Monday to Friday between 10.00 am and 3.00 pm, where settlement is T+2. There are no investment limitations for foreigner investors, as well as no repatriation, or minimum listing requirements.

To cement the independence of the bourse, its by-laws prohibit any one shareholder from holding more than 5% of total capital. In 2H1999, the bourse adopted an electronic trading system, which to date operates in the secondary market, having a positive effect on trading volume, and attracting liquidity. International best practices and standards are enshrined at the bourse by Decree Law No. 1 of 1999, which stipulates a benchmark for confidentiality on the part of the issuer to bolster investor confidence. Today, 36 brokerage houses licensed on the BVP trade more than 150 stocks.

Growth of the BVP has been spurred by Panama's positive business environment, and underpinned by the prospects of lasting political stability. Moreover, the adoption of a uniform taxation for all financial instruments removed the tax bias that held back the development of the securities market.

Panama's economy has been a stranger to inflation, boasting stable interest rates. And being dollarized, and thus able to issue in US dollars, has attracted further resources from the international markets than may have been possible in a local currency environment. Moreover, in the country's fiscal environment foreign transactions are exempt from taxation. In this light, the BVP has aspirations of becoming a regional financial hub.

At first sight the global credit crunch appeared to have spared Panama's capital markets, while the rest of the world, including the Americas, reeled. For 1H2008 the BVP rang up a total of $1.205 billion in transaction volumes, marking a 27.9% YoY increase on the same period of 2007. The benchmark index closed the period at 263 points, up 8.2% over the same period of the previous year. Yet reality bit hard mere months later in the form of a vertiginous 72.9% decline in transactions during the first two months of 2009 from the same period of 2008. And despite being the largest dollar-based equity market in Central America, Panama's capital markets also saw some contraction in recent times due to the de-listing of companies bought by international entities.

A broad platform, if bond-trading heavy in practice, the BVP offers the investor, among others, trading in stocks, short-term corporate debt, corporate bonds and mortgages, as well as government paper, and closed end mutual funds. As AboutMoney reveals, as of 2011, the BVP had only 22 registered publicly trading companies, although their the combined value was roughly $2.64 billion, up 61.35% over 2009 levels. Of note, there are no exchange-traded funds (ETFs) entitling the investor to more than 2% exposure to Panamanian companies, and the Industrials/Producer Durables AlphaDEX Fund (FXR) has just a 1.72% weighting.

PERFORMANCE

Fast-forwarding to 2011, World Bank data reveals that the benchmark BVPSI index ranked as the 53rd largest stock exchange worldwide in terms of market capitalization as a percentage of GDP, on a figure of 33.11%, sandwiched by Germany in 52nd place (32.65%) and Kenya in 54th place (29.73%). And among the Americas for that year for which data is available, Chile ranked eighth (107.62%), Mexico 50th (34.93%), and Brazil 39th (49.62%). The market capitalization of listed companies in Panama as a percentage of GDP at 33.05% by 2012, in stark contrast to a nadir of 3.40% in 1992. With a print of 50% identifying a mature economy, by way of comparison, for 2012 the UK figure was 122.65%.

According to BVP figures, the primary, secondary, and repurchase markets as of June 2014 had ratcheted up to $469.7 million, from $230.7 million in 2013 on a 53% rise. In the first six months the primary market rose 60% to $254.9 million, while the secondary market soared 193% to $195.3 million; and the volume of shares registered at the BVP, saw growth of 565%, bringing 687,327 additional shares over the same period of 2013.

Panama's benchmark BVPSI index slid to 412.97 index points in September of 2014 from 416.76 in August. The benchmark index averaged at 161.01 index points from 1992 until 2014, peaking at 478.75 points in May of 2013, and troughing at 13.70 points in January of 1992. Meanwhile, as of September 2014 24 the benchmark was down 4.0% year-to-date, and down by 5.95% on a one-year basis, trading within a 52-week range of 411.91 to 444.64. For the first eight months of 2014 the primary market saw a volume of $2.4 billion, and the secondary market $1.3 billion; this compared to respectively lower figures of $3.5 billion and $1.6 billion a year earlier.

THIS FROM THE TREASURY

In May 13 2014, the government placed treasury notes valued at $33.94 million at the BVP, of which $2.4 million traded in the secondary market, marking notable growth in volume of $57.85 million, according to BVP data.

By the end of 2013 the transaction volume of local sovereign notes in Panama had climbed to $763 million. This achievement was in large part due to the Ministry of Economy and Finance's Market Maker Program. In the words of the ministry, “The Market Maker Program aims to develop the domestic market for government debt securities in which the entities approved by the government will permanently and simultaneously quote buy and sell prices in order to increase liquidity and market depth." And as of August 31, 2014, public debt stood at $1.36 billion.