We recommend zero exposure to Panamanian sovereign bonds. While this positioning might be relatively premature, we prefer to recommend it now inexpectation of a sharp rise in fiscal spending for electoral reasons next year. For those that are currently involved in this credit, we think it may be opportune to begin executing an exit strategy.
We recommend replacing Panama with exposure to other high-grade credits in Latin America, such as Peru, Colombia and Mexico. Because of Panama’s expensive valuations, we think investors are likely to benefit more from owning other LatAm high graders with lower downside risks.
A most interesting post over at Bananama Republic today, the finest blog on Panama by several nautical miles, in which we get to hear about the looming death of Panamanian President Martinelli's debt-fuelled unsustainable spending spree. Here, for example, is what UBS has just told its clients (we quote the e-mail alert title) “Panama Losing Fiscal Credibility”. And here, extracted from a longer note (link to the full doc available at the Bananama Republic post) is what Nomura thinks of Panama exposure all of a sudden.
You have been warned, ladies and gentlemen. So here's the link to the Bananama Republic post again to make sure you make it that far and here's some advice for those long Panamanian bonds from another bunch of wise people who are always worth heeding: