Panamania!

Ok the title's lame but you try finding something funny to work Panama into.

An interesting paper on public debt markets in Central America, prepared for the IMF by authors Hemant Shah, Andreas Jobst, Laura Valderrama-Ferrando, and Ivan Guerra, gives us a closer look at Panama.

This morning I had a sudden interest in Panama, why? No idea, my fellow snarky economists here asked me the same thing, but now I am a firm believer in looking deeper into this quiet country. It is worth our while to start looking past Brazil, Mexico and Columbia into other areas that while not exhibiting growth certainly is increasing stability.

Reasons to look more closely at Panama

1. Panama continues to have sustained and strong economic growth - 7.6% Real GDP in 2004, 6.4% in 2005 with low inflation (2.9%)

2. Panama has a well developed and liquid banking center - it's always a plus to have a liquid domestic credit market

3. There is plenty of room for growth in the nonbank financial sector e.g. insurance, investment management, etc. And there seems to be good insulation from financial crisises in neighbouring countries.

4. There isn't an enormous amount of secondary trading in the Bolsa de Valores de Panama SA but if the Bovespa IPO is any indication, there is a continued "flight to quality" in Latin America where companies continue to seek stable financial centers to list their companies and are not shy about crossing borders.

5. Taxes are attractive - I wouldn't buy any munis but that's another issue. Our authors note "Domestic income is only lightly taxed and foreignsourced
earnings as well as dividends and capital gains from exchange-listed companies are tax-exempt. Interest income from nonlisted securities is subject to a flat tax rate of 5 percent."

6. Sovereign credit quality has continued to improve. The country has gone from borrowing a 10 year tenor @ 10.75% in July 2000 to it's more recent March 07 30 year offering @ 6.7%. Current 5 year CDS spreads place it higher than it's neighbors (Brazil, Venezuela, Mexico, and Colombia) Though I would argue that Venezuela poses far greater political risks.

Current attractive corporate offerings include

Panama Canal Railway Co - 20years @ 7%
Banco de Credito del Peru (Panama) - 15years @ 7.17%
AES Panama SA - 10years @ 6.35%

Making music in Indonesia

So President Susilo Bambang Yudhoyono of Indonesia on the campaign trails does not mention anything about the problems of trade stangnation, diminished trade relations with the rest of Asia, the fact that their natural gas resource which has been holding the GDP up, is depleting, what does he talk about? His new album!

Apparently he’s hoping that his collection of love ballads will beat out the love ballads of his rival, Army Chief Wiranto.

Indonesia has several investment grade whole loans that came out this year. Companies to look at include

Indorama international (Textile)
PT Ultrajaya Milk Industry and Trading Co (Food & Beverage)
PT Austindo Nusantara (Mining)

I am interested in how PT Bakrie Telecom will fare in the future. They took out a fairly high leveraged loan in July (5 year tenor). Sales are down 7% though.

I’m still a fan of telecom in the emerging markets. Aside from possible nationalizing or tanks rolling over them, there is little political risk that would result under civil unrest – people still need to call each other right?

According to the IMF, the problem with Indonesia is that it hasn’t really found a way to increase market share in the export market. Indonesia has an open trade policy with little or no tarrifs making it a relatively open economy. Yet it seems to have it’s focus in the wrong place. It is currently over trading with Latin America, the Middle East, and Africa. It is under-trading with the US, EU, and the rest of Asia.

As it stands now, it may be worth getting into these short term corporates that are paying extremely high yields in Indonesia. I certainly would not want to invest in the sovereign paper nor it’s equities unless you really know where to look. The macro fundamentals in Indonesia do not seem poised for growth unless its leaders push for increased trade with China, EU and the US. Currently it’s Debt/GDP is on par with Argentina, and we already been down that road.

some breakfast links to get you going for the weekend

T. Rowe fund returning 62% YTD investing in some previously untapped markets

Don't forget about Russia from Barron's with love.

Don't rely on the BRICs to pick up the slack or the dry cleaning for that matter

The IMF shows some concern. All together now: awwww!