The Dominican Republic specialises in two of my favourite investment themes
The Caribbean country is making the most of its strategic location, says James McKeigue. Intrepid investors in search of profits should do too.
One of my most controversial tips has been Central America and the Caribbean. The former is known for civil war and gang violence, the latter for beaches and rum, but I have spent the last few years looking for investments in both.
Well, it looks like that decision is coming good.
Last week, US cable mogul, John Malone I wrote about him here admitted he wants to buy our long-term favourite Cable and Wireless Company (CWC). Nothing is confirmed yet but just the announcement has put the London-listed share at 74p up 80% since I first discussed it in July 2013.
CWC owns a spread of telecommunications firms across Central America and the Caribbean. I always liked it because I saw it as a play on the long-term positive economic fundamentals of the region. However, as I noted back in 2013, it also looked like a "useful takeover target". It seems that one of America's sharpest businessmen shares my opinion. I'm not trying to boast, but if you hold shares in this company, now could be a good time to cash in.
The Dominican Republic offers a wealth of opportunities
As any investor knows, the good feeling of a great stock pick only lasts until you sell it. Or maybe until you've spent it. Here at the New World, I'm always looking for the next big movers, so the big question is "will the region keep on rewarding us?"
In a bid to answer that question I've just arrived in the Dominican Republic. A real bridge of a country, it is the Caribbean country most linked to Central America and it's the biggest economy in both. I'm going to spend the next two months interviewing leading players from the public and private sector, but even my first impressions of the country make it worth highlighting for New World readers.
The first thing to note about the Dominican Republic is that the country is no stranger to UK investors'. Sir Francis Drake is considered a hero in Britain, but he sacked the capital, Santo Domingo, and installed himself in the cathedral. I visited that cathedral on the weekend and its sparse interior is a stark reminder of the damage wrought by Drake.
But our favourite pirate's presence was no accident. Drake came to the Dominican Republic because its strategic location made it a vital trade pivot between the old and the new world. Today, more than 500 years after the Europeans made their first settlement in the Americas, the Dominican Republic remains a crucial trading hub. Now the country is trying to build on that location by developing its logistics infrastructure so that it can act as a transhipment point for goods passing between the Caribbean, Europe and South America.
Agriculture set for a boom in the coming years
Regular readers will know that one of my favourite investment themes is agriculture. Put simply, the world will need increasing amounts of food and Latin America is the best place to provide it. (You can get a more detailed explanation here.)
While I think the entire agriculture sector will rise with the growing tide of demand, some producers are particularly well placed to profit. I have spent the last year visiting farmers from Chile to Guatemala and noticed an interesting trend. Non-traditional agriculture, that is demand for speciality products such as exotic, organic and fair-trade fruitand vegetables, has been going through the roof.
The whole emerging-market consumer story may be pass for Western investors, but the introduction of hundreds of millions of people to the global middle class has certain lagging consequences one of which is a demand for better-quality, more traceable, healthier food. Agriculture production lags demand because it takes a few years to start new crops in new areas, but over the last five years, Latin America has used capital and technology to expand farming frontiers both in terms of area and crops grown.
And that's another reason to like the Dominican Republic. It's an agricultural powerhouse that specialises in niche value-added agricultural goods such as fair-trade bananas, organic coffee, quality rum, aromatic cacao and fine cigars. Throw in plenty of free trade agreements and the strategic location and it's clear to see that theDominican Republic should benefit.
The Dominican Republic is a tourist paradise
But the Dominican Republichas far more to offer than just agriculture. What strikes me most about the country apart from the blaring music and great rum is that it specialises in the sectors that I have been bringing to your attention for so long. Regular readers will know that Latin American tourism ie, people travelling within the region is one of my big investment themes.
Well, the Dominican Republic is a tourist magnet. Coastal resorts like Punta Cana draw in crowds from around the Americas, while the country is also home to the oldest and best preserved colonial centres. The potential for more tourism growth has been recognised by industry insiders for example, Carnival has just built a new port for cruise ships here. I share Carnival's optimism and think the tourism trade will continue to drive the Dominican Republic's economy.
Challenges or opportunities?
Of course the Dominican Republic has its fair share of problems. And I'm going to spend the next two months investigating if these can provide opportunities for British investors. The energy matrix, for example, is pretty bad. I've experienced at least ten blackouts since I've been here and I arrived less than a week ago. To be fair, it's not inconvenienced me too much, as most buildings have an emergency generator, but you can't build a winning economy on an expensive inconsistent energy supply. The companies that can find a cost-effective way to solve this problem will reward investors.
Another, well publicised, issue is immigration from neighbouring Haiti. The two countries share an island, but former French colony Haiti is desperately poor. Uncontrolled immigration from Haiti to the Dominican Republic caused resentment in the latter, while recent attempts to impose a new, more ordered immigration system, has sparked anger. Yet if the solution can be found, then the ten million people in Haiti can add an extra push to both the Dominican Republic's consumer market and labour force.
It promises to be an interesting eight weeks and I will keep you updated on the investment opportunities I come across.