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Forbes Magazine, September 21, 1998 Well, for one thing, it is not a secret among savvy European investors. Spanish, Italian and German investors have been quietly buying real estate and have been investing in general for some time now. For the American investor however, it remains an unknown destination. With less than 16% of the total tourists coming from the US, the Dominican Republic remains an undiscovered market. That will change as the Dominican government looks to increase advertising and awareness. But until everyone else makes the discovery, wise investors have a window of opportunity to act and take advantage right now. To be sure, we can classify the Dominican Republic as an "emerging market". But the fact of the matter remains that it is a market that is emerging very quickly and in the right direction. While legislation had been passed to create the Stock Exchange in 1989, in reality it has only been operating since 1991. This means that the market is new, and the idea of both an equity and capital market is just coming into consciousness. Due to the fact that most companies do not wish to sell shares to the public (this is a common theme among family owned Latin-American companies), the majority of activity has been in the capital and fixed income markets. Due to the desire to keep companies privately held, the real current opportunities are in commercial paper, bonds and longer term Hotel or real estate related investments. That will change in the future as more companies look to both stock and bond offerings for capital, and not the banking sector. You will not find a Merrill Lynch or Dean Witter office in Santo Domingo. But what you will find are true opportunities for the small investor to earn some attractive returns in a market that most Americans are not even aware of. This means that investors interested in investing, living or retiring in the Dominican Republic have an ideal opportunity right now to participate in real estate investments for both long-term growth and benefit from high current monthly income through a number of bond and commercial paper offerings. Although they are unfamiliar names to U.S. investors, many of these companies issuing fixed income instruments are well capitalized and are well run local companies. Some are the top corporations in the country. "High profits exist in under-capitalized or unknown markets" Many investors do not realize that money, like everything else in life, has a cost. We all understand that car companies increase the price of new and best selling models. We also understand that toy stores increase the price of popular children's toys when the demand outweighs the supply at Christmas-time. Money, or more correctly interest rates, works the same way. When sufficient or excess capital is present in the economy, interest rates or the cost of money goes down. When money is needed or in short supply, interest rates or the cost of money goes up. This is the current situation in the Dominican Republic. The country is entering into a growth phase and capital, especially dollars, is sought after. For this reason, US dollar interest rates remain much higher than in the US. The truth of the matter is, because of the new publicly traded capital markets that have come about with the creation of the Stock Exchange, interest rates have actually come down from five or six years ago. This is a natural progression in a developing market. With that said, rates still remain very attractive when compared to the current 4.5% money market rates or bond rates in the US. A Sample of
recent offerings in Pesos and US Dollars from the Stock Exchange &
Private Placement Markets:
Generally speaking, what is the future for the Dominican Republic? All one has to do is look at the new housing construction and perhaps more importantly, the new infrastructure. The Government is actively developing new highway systems and has recently completed an express tunnel running directly through the capital of Santo Domingo. Plans are being discussed for a Monorail system in the capital as well. What do these things indicate for the forward thinking investor? For me, it points to a country moving ahead. Any country that is investing into its infrastructure and moving ahead with pro-investment legislation is a country worth adding to your investment list. Timing is everything and now is the time! As the economy grows and as more investment enters into the country, the opportunities at the ground floor will start to disappear. Interest rates will come down eventually and capital will start shifting to equities. For the moment, the capital markets are the place to focus. Action Plan for Investors:
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Take
advantage of the higher interest rates available right now in the money
markets. Whenever possible, try to lock in some higher yields with
3, 5 and 10 year bonds whenever possible (Dominican companies do not like
to issue long term debt, so finding longer term bonds can be difficult)
