Investing in Cuban: Opportunities Develop
There haven’t been big breakthroughs since U.S.-Cuban relations were
re-established. But investors should be aware of smaller signs of progress.
By DIMITRA DEFOTIS
November 21, 2015
In Cuba-U.S. relations, so much has changed in 2015. For U.S. investors,
however, things have stayed much the same.
It’s been nearly a year since President Barack Obama and Cuban President
Raúl Castro announced warmer relations. The U.S. removed Cuba from its
list of state sponsors of terrorism. But Cuba still has a
Marxist-Socialist economic model, a two-tiered currency system that
favors locals, and no stock market.
What investors have, for now, is improved diplomacy: After a year of
tense negotiations, Cuba is home to a newly opened U.S. embassy in
Havana, and it opened its own embassy in Washington, D.C. More flights
and mail between the countries could be imminent.
Still on the books: a trade embargo by the U.S. that may not be lifted
ahead of the 2016 U.S. presidential election. Those who want the embargo
lifted hope a Democrat wins the White House in 2016. Republican
presidential candidate Marco Rubio, a Cuban-American from Florida, has
promised to undo Obama’s Cuba detente.
Meanwhile, the number of U.S. tourists visiting the island may have
spiked by 40% this year, underscoring the travel-related investing
opportunity just 90 miles from Key West, says Pedro Freyre. The
Miami-based attorney and Columbia University adjunct professor of law is
a man with his bags forever packed. He consults with U.S. companies in
agriculture, technology, health care, and other sectors where limited
trade with Cuba is already allowed.
Cuba is actively courting foreign investment as it seeks to build its
creditworthiness, and it’s already doing business with China, Russia,
Brazil, and a host of nations that showed up at the annual trade fair in
Havana earlier this month. Freyre was there; he likens U.S.-Cuba ties to
those with Saudi Arabia, Vietnam, and China: diplomacy despite differing
PRIVATE-EQUITY INVESTOR Redux Capital Advisors, a London-based asset
manager focused on Cuba, sees big opportunities. It hopes to close the
first piece of a $300 million fund this year as the embargo slowly
unravels. Just last week, the U.S. Treasury’s Office of Foreign Assets
Control removed the names of a handful of Cuban bankers, mostly in
Europe, from a list of banned business partners. Also last week:
MasterCard (ticker: MA) and Stonegate Bank in Fort Lauderdale, Fla.,
announced their debit card can be used at select Cuba locations.
Both Redux and Freyre believe that other countries have a leg up on
Cuban investment, and that the U.S. Congress needs to move. Cubans on
the street hold American accomplishment in high regard, and seem
delighted with the idea of doing business. That was the reaction Freyre
got when surprising people with “Yo soy Cubano, mi hermano!” or “I’m
Cuban, my brother.” The lawyer and the investor may be on to something.
Regularly scheduled flights between the U.S. and Cuba could be
negotiated within the embargo parameters by the end of this year, and
unification of Cuba’s currency may also be imminent, Freyre says.
What’s an investor to do? The closed-end Herzfeld Carribean Basin fund
(CUBA), a proxy for growth in Cuban tourism, soared a year ago. But it
is down 24% this year, trading in line with its underlying asset value.
While the travel and infrastructure stocks in the fund are not pure-Cuba
plays, lifted travel restrictions could lift returns. Another top
holding, Panama-based Banco Latinoamericano de Comercio Exterior (BLX)
jumped nearly 5% last week.
Source: Investing in Cuban: Opportunities Develop –