Interview with Manuel Barrachina, Panama Brokerage Accounts

That is why we always recommend you to have the support of an expert, not only during the time of investment but even far before: when you have to choose the jurisdiction to open your brokerage account, as this will rule on your financial future.

One of the best territories to do so is Panama: it has one of the most stable markets, which will make the investment easier and safer. Today, our bond and equity investment expert, Manuel Barrachina, answers the most important questions about brokerage in Panama. Keep reading!

Q. Dear Manuel, thank you for being with us today. It is a pleasure to have you with us.

A. The pleasure is all mine, thank you for having me.

Q. We understand that you are a licensed investment adviser and broker and have worked in one of Spain’s top banks and several top brokerages in Panama and are now advising high-wealth clients and family offices. Firstly, can you please tell us about your career and your experience in Panama brokerage?

A. Initially, I started as a financial advisor in 1998 in an investment brokerage house in Spain, Madrid. Later, I belonged to one of the big Spanish banks when it was bought to increase its investment management segment. I obtained my wealth management license at the European level, EFPA, in order to carry out my work. Unfortunately, the great crisis of 2008 came and our portfolios were sold to deal with debt.

The new opportunity took hold in Panama in 2012, when I started to work at the largest bank for funds in this country. My work was aimed at high-profile clients; then, I returned to work in my field in independent investment societies to this day, thanks to my license as a broker/analyst and fund advisor in Panama.

Q. Could you tell us what a brokerage account is and how it is opened in Panama?

A. A brokerage account is the one that will allow clients to buy investments such as stocks, bonds, and mutual funds. Having one is quite an easy process, as the steps for opening an investment account in Panama are the same as opening a regular account at a bank. Here is what the client will need.

Natural person:

• Passport.
• Second document (ID or driver’s license).
• Two bank references of the country of origin with a minimum age of 6 months.
• Bank statements.
• Income statement.
• Commercial and personal references.

Q. Is it true that a brokerage account is safer than, for example, a bank account because even if the bank goes bankrupt you still hold the bonds or equities under your name? Can you explain in more detail?

A. Yes. Let me tell you why: if it happens that the bank responsible (custodian) for the shares was in trouble or even in liquidation, the shares are always in the name of the buyer and the owner of the portfolio must open a new investment account, unless the client had one already created, and transfer its portfolio there without more risks.

Q. Is it true that you can buy high yielding bonds in Panama? What are the investment options in Panama when it comes to bonds, equities, etc.?

A. There are bonds and bonds with attractive yields in Panama. They are not currently suffering like the rest of the markets; it is something more closed and protected and in USD. The best ones are related to banks, airports, and large corporations that have businesses in all fields.

Q. Do you work in other investment sectors as well? For example, can a person perceive a return on the investment from foreign bonds or equities while living in Panama? Would this mean the person is free of taxes?

A. Of course, the market has made me diversify the investment field in addition to the stock market. There are precious metals: gold, silver, copper, as well as raw materials such as oil. Globally, it is allowed to invest directly in companies and take the direction of the company in order to improve its profit and value.

Panama has a magnificent taxation for foreigners and people who invest in the Panamanian stock and bond market. Interest is exempt. And it is only paid when high profits have been made in the purchase/sale, but there are ways to be able to legally optimize the tax coup.

Q. Can you tell us about the Panamanian stock exchange? Is it reliable? How has this exchange market behaved during the last years? Were there big falls or unstable situations?

A. The Panamanian market is very stable, quiet. There is not high volatility, so the recommendation is to invest in local companies of great dividends and coupons. If the client wants a little more profitability, they would have to go out to the foreign market using Panama as a basis for their tax advantages. My recommendation last week on the Mundo page was to enter the global market.

Q. Can you please tell us about Panamanian Stocks, ADRs, or Bonds? What’s the difference between these and what are the advantages?

A. My investment recommendation in the Panamanian market is directly in the Bonds, they do not suffer the volatility of the markets, you have a good guaranteed quota, the investment is in dollars and you have no holds for the local estate. The rest is a small, modest market. It wouldn’t be my Panama bet.

Q. Can you tell us about the investment grade status? What does this mean?

A. Investment grade is a credit rating category that encompasses several types of ratings with less likelihood of bankruptcy versus the non-investment grade category.

It is, therefore, the job of credit rating agencies to rate a particular financial asset, company or state, and that it indicates that it has a low or relatively low risk of bankruptcy or default.

The appropriate ability to pay for Moody’s investment grade is Baa rating and for S&P and Fitch is the BBB.

Investment grade categories

There are two categories of credit rating, investment grade and non-investment grade, a high-risk grade, speculative, and where the high yield category is located.

It is very important to distinguish between the two categories, especially when investors (working with investment funds) have financial assets in their portfolios rated very close to the dividing line, because if an agency reduces to non-investment, the degree of non-investment that asset will have to dispose of it, selling it, and causing waves of chain sales.

The investment grade categories established by each of them are as follows:

• Very strong pay ability: For Moody’s, the rating is aaa and for S&P and Fitch is aaa.
• Strong pay ability: for Moody’s, the rating is Aa, and for S&P and Fitch is the AA.
• Good payment capacity: for all agencies, it is A.
• Adequate payment capacity (Medium/Long-term risks may exist): for Moody’s, the rating is Baa, and for S&P and Fitch is the BBB.

These notes are of great importance to investors when investing in financial markets and, in some cases, can be very relevant in fear of investing in financial markets. Credit rating agencies are highly economically influential agencies worldwide.

Within these categories mentioned above, there are subcategories, depending on the type of issue and the issuer in question. For example, an issue of a bond from a small company will not be the same and will not have the same security in the payment as of a sovereign bond or a state. 

The small business will have a worse credit rating and the bond yield will be higher because it will have to compete in profitability to be more attractive to place it. Therefore, being a higher risk asset, investors will demand a higher return. 

On the other hand, the credit rating is very important to value a financial asset as it will directly influence its risk premium. If its valuation is not reasonable, the risk premium will skyrocket and consequently, investors will demand a higher return to assume that risk.

Q. The COVID-19 crisis has undoubtedly been a big strike for the economy worldwide. How do you see Panama in the next few months? What is your advice for investors in this regard?

A. Panama is a small and protected market, and it is not suffering like the great countries with excellent productions and a large amount of population. In the United States, over 3.3 million people asked for unemployment aid, this is the entire working-age population of Panama. We’re not in that situation here, because of the size. But it is an area with large banks that are engines of development; investing in them is safe and they give good profitability.

Now it’s time to calm down and see the markets because there are opportunities. There are companies whose stock market value is below the price of assets. And that’s my job: to find it and find them for customers.

Q. There are many theories on what to do during and after the coronavirus crisis in terms of investment. Several of our investment experts say hold cash and start buying when things crash, as well as turn to physical gold and silver; what is your view?

A. At the current moment, the best thing to do, if possible, is to have liquidity and to invest little by little. You don’t know when the exact time is, but when you invest with regularity you get more hit, there are times that high prices others that lower. And the average is favorable.

Right now, the safest values (called just like that, safe values) are precious metals: gold, silver, platinum. So, in a diversified portfolio, you have to have some of these. With this volatility, any of these would be the right choice for clients who want to sleep peacefully at night.

Q. Finally, I also understand you can advise on putting together a portfolio for clients, would you please tell us a little about how you advise clients in terms of investments?

We must always ask the client a series of questions, we have to know what they want and what type of investor they are. The most important factors are risk breakdown, investment time, amount, taxation, and the age of the client. According to these answers, we should create an investment portfolio that will allow them to have stocks, bonds, funds, commodities, precious metals.

This defines whether the client is an aggressive, moderate, or conservative customer. We need to know how much time they have to invest, the amount to diversify, the taxation to pay as little as possible, and the age, because the older an investor is, the more careful and moderate we have to be.

Thank you so much for your time, Manuel. We are sure our readers will be thrilled to have this detailed information on Panama brokerage.

If you have any more questions, do not hesitate to contact us. We work along with many experts such as Manuel, who have many years offering their services to clients around the world and are prepared to help you with any doubts you may have.

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