Investments in Central America: which sectors to look at in 2023?

Specialists agree that last year was disastrous for investments and, unfortunately, the prospects for 2023 are not rosy. The forecasts speak of job cuts and a recession.

The Central American region, according to the projections of multilateral organizations and local entities, will experience more moderate economic growth this year in a fragile global context, as a result of high inflation, the increase in interest rates and the disturbances caused by the Russian invasion of Ukraine.

Given this scenario, what options do investors have? Bloomberg Línea spoke with Melizandro Quirós, executive director of the Center for the Study of the Financial and Real Estate Business (CENFI) of Costa Rica, who provided an analysis of investment opportunities in the region for the year 2023.

In the consultant’s opinion, as a starting point it is necessary to identify the level of risk that the Central American economies have to make use of the resources that they can attract.

A REFERENCE FOR INVESTORS

In this sense, investors use the EMBI (Emerging Markets Bonds Index) as a reference, which is built by J.P. Morgan Chase, being a reflection of the risk premium that they have to pay in other countries with respect to US Treasury bonds.

Based on the data, “we could classify the countries of the region into three levels: countries with low, medium and high risk,” Quirós said.

In the first category of countries with low risk is Panama with a risk premium of 2.37; in Guatemala, with 2.39, and the Dominican Republic, with 3.72. “In these countries, in 2022 there was a relatively good economic performance and they have very good prospects of maintaining their economic stability by 2023.”

In a second risk classification are countries like Costa Rica, with a risk premium of 3.55, and Honduras, with 5.75. “Both with a relatively regular economic performance in 2022 and with a projected behavior for 2023 also still somewhat uncertain.”

A third level of countries with a relatively high risk are El Salvador and Nicaragua, “where the attraction of investment is hardly as clear as in the two previous groups.”

INVESTMENT IN SECURITIES

According to Quirós, the investments that may be interesting for the region are the sovereign bonds that the countries currently have at the international level. “There we would have 10-year term Panama titles that are being sold for US$5.5; Dominican Republic US$7.25 also at 10 years; Costa Rica with US$7.55 at the same term”.

The expert said that these are investments in government securities “which obviously reflect a fairly reasonable country risk behavior and are a good investment for investors in these terms.”

At the local level, in the aforementioned economies of group 1 and 2 there are also investment options related to investment in the local financial market, that is, bank securities generally issued in fixed income “and that with the inflation levels we have in the region , they are paying relatively attractive yields of 5%, 6% and up to 7% in local currency at terms of 3, 4 or 5 years”.

A third interesting instrument is the financial investment funds in local currency that are yielding close to 4% or 5% and that are attractive for terms of two or three years.

In a fourth level of investment at the financial level are the titles of private or corporate companies in the region, mainly located in Panama, Guatemala, Costa Rica and the Dominican Republic, where “in general, titles of companies related to the technology sector are very attractive and communications”.

Also from companies that require resources for consumer financing, such as credit card issuers or that are financed for their activities related to the retail market, be it a supermarket or grocery stores.

INVESTMENT IN THE REAL ESTATE MARKET

A second type of investment option has to do with the real estate market and according to Quirós, this can be done through investments in the regulated market or at a private level.

In the private real estate market there are options in the Dominican Republic, through real estate investment funds, which are yielding an average of 6% per year in dollars at the end of 2022.

Costa Rica also has a relatively attractive real estate market, with yields close to 5% at the end of 2022.

In the private case, at the real estate level there are also good opportunities in the region, particularly investments in what are real estate projects related to areas that have a good push for 2023: industry, logistics and storage.

In this last sector they are getting a lot out of real estate investments in Costa Rica, through industrial parks, in Panama and in the Dominican Republic. There are also investment opportunities in the housing real estate market in countries like Guatemala, Honduras and a part in Panama.

With information from Bloomberg