September 23, 2020

Emerging markets: More thoughts on what expats can teach us about investing

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InvestingBy Peter Kohli, From Nasdaq

In Part 1 of this article discussing the four countries where expats from the United States have decided to move, my focus was on Panama and Costa Rica. I now turn my attention to Guatemala and . As I alluded to previously, there has been a lot of bad press recently about these last two countries, but the fact that so many expats from both the US and Europe are moving there means that things can’t be quite that bad. And indeed they aren’t.

Guatemala

According to International Living, “Guatemala is the most populous country in Central America with a per capita roughly one-half that of the average for Latin America and the Caribbean. The agricultural sector accounts for 13.5% of and 30% of the labour force; key agricultural exports include coffee, sugar, bananas, and vegetables.”

Guatemala is quickly becoming Costa Rica’s biggest competitor for North American retirees. The reasons are numerous. The cost of food, cleaners, caregivers, gardeners and real estate can be a fraction of what one might spend in other countries. Health care is inexpensive but of high quality. Among the intangibles are the country’s warm days, cool nights and lack of humidity — meaning there’s rarely a need for heating or air conditioning.

In Guatemala which, like Honduras is about the same size as Tennessee, expat hotspots include Lake Atitlan, a large lake in the country’s highlands; Antigua, a stunning city on the Caribbean Coast founded in 1543; and the nation’s capital, .

With all its positive attributes, there is no question that Guatemala is a developing country facing many difficulties including economic poverty, an abundance of weapons, a legacy of societal violence, and weak law enforcement and judicial systems.

Honduras

Again according to International Living, “Honduras has all the makings of the perfect retirement haven: lush countryside with beaches and mountains, a tropical climate, international airports, safe cities, friendly people, and, most importantly, a very low cost of living. You can eat well for just a few dollars a day in Honduras. The country produces rice, beans, plantains, bananas, mangos, pineapples, papayas, melons, oranges, and more, for pennies a kilo. Seafood is inexpensive and plentiful along the entire Caribbean coast.”

Honduras boasts four international airports making it easy to travel back to the U.S.; a modern, efficient highway system which makes travel within the country simple; deep water ports on both the Atlantic and Pacific sides to make the movement of goods expedient and inexpensive; excellent banking; favorable property ownership regulations (foreign individuals have the same rights as Honduran nationals); and excellent communication systems, from landline to cell and DSL.

Like the other countries mentioned, household help, food and housing are all inexpensive if not cheap — its cost of living is between one-third and one-half lower than its Central American neighbors. There is no income tax on income earned outside the country (read: stocks, bonds, mutual funds, social security, pensions), and you can live tax free.

The main retiree centres are the capital city of Tegucigalpa, La Cieba, and Roatan, the latter of which has seen a particularly large influx from British, New Zealand, Australian and South Africans, in addition to North Americans.

As the second poorest country in Central America, Honduras suffers from extraordinarily unequal distribution of income, as well as high underemployment. While historically dependent on the export of bananas and coffee, Honduras has diversified its export base to include apparel and automobile wire harnessing. Nearly half of Honduras’ economic activity is directly tied to the U.S., with exports to the U.S. accounting for 30% of GDP and remittances for another 20%. Moreover, Honduras boasts a thriving textile industry, and is Central America’s largest textile exporter. Notably, its economy is not commodity-based and tied to Chinese demand. Some of the largest U.S.-based manufacturers include Hansbrands (HBI).

What about crime?

So why the radical disparity of reverse-migration patterns? Namely, the two groups — disadvantaged younger people and American retirees, have dramatically different profiles, wants and needs. In fact, although Honduras is one of the poorest countries in the western hemisphere it does have a strong economic growth rate, averaging 7% per year, one of the best in Latin America. Those facts are good for retirees, but not enough for those native citizens starting from a place of extreme difficulty.

Also, in addition to having completely different goals — opportunity to earn versus opportunity to retire — the two populations tend to live in completely different areas.

While Guatemala has one of the highest violent crime rates in Latin America, theft and armed robbery are the crimes most reported by Americans. Most crimes here tend to be opportunistic, and the mid-range accommodation complexes favored by expats are highly secure.

In Honduras, the highest crime region is Francisco Morazan in the centre of the country, which is also home to the capital city of Tegucigalpa.

So, finally, the migration of retirees from the U.S. and other countries to these four Central American countries shows that they will continue to hold an allure that is on the rise. To accommodate them, well-known companies such as McDonalds (MCD) and Coca-Cola (KO) will continue to expand as a taste of home is always welcome.

For more on this story go to: http://www.nasdaq.com/article/emerging-markets-more-thoughts-on-what-expats-can-teach-us-about-investing-cm421358#ixzz3LWJEtHCm

IMAGE: stocksonwallstreet.net

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