By Javier Trullols
It is well known that the Dominican Republic is famous for its breathtaking scenery, wide variety of natural resources and as an international tourist attraction. On the other hand, it is important to highlight that the Dominican capital markets offers great investment opportunities for both international and local investors. The Dominican Republic Stock Exchange was officially founded in 1988 and has played a major role in private and public sector funding.
In the following paragraphs, we will take a closer look at the key factors which have propelled the Dominican Capital Market into one of the fastest growing markets in the region. Firstly, in order for Capital Markets to be successful it is imperative for the country to have solid macroeconomic fundamentals. Dominican Republic’s economy has the biggest growth potential in Latin America and the Caribbean. GDP growth in the first semester of 2017 was roughly 5.2%, higher than most economic projections.
The inter-annual inflation rate as of April 2017 was 3.51%, lower than the Dominican Central Bank’s 4+/-1% projected forecast for 2017. The Central Bank of the Dominican Republic has done an excellent job in increasing international reserves, which as of March 2017 were roughly US$ 6.4 billion. The USD/DOP pair has been very stable since the beginning of this year. The DOP has depreciated (monthly average Jan – April 2017) only 1% (YTD), which is very low for a frontier market econom
Attractive interest rates are one of the most noticeable advantages of investing in the Dominican Capital Markets. Sovereign bonds are currently yielding in the 9-11% (DOP) range (5% – 7% in USD). The Central Bank of the Dominican Republic and the Ministry of Finance (MOF bonds are tax-free) are the main bond issuers in the country. The Dominican government successfully auctioned US$1.2 billion in sovereign bonds during the first semester of 2017 (global capital markets) at a 5.95% yield (great yield for a frontier market economy).
The local capital markets have traded a total of US$15.2 billion in the first 4 months of 2017 (OTC and Dominican Stock Exchange), which accounts for roughly 21% of domestic GDP. Dominican Republic USD denominated sovereign bonds have a credit spread of 332 basis points (Vs US Treasury Bonds), 36 BP below the Latin America average EMBI index. Basically, this means that Dominican Republic’s creditworthiness is perceived as above average compared to other Latin American countries.
Dominican Republic has very strict regulations regarding transparency, capital requirements, and creditworthiness for all market participants. Three regulating bodies closely monitor all market activities (Bolsa de Valores de la República Dominicana, Superintendencia de Valores, Consejo Nacional de Valores). In Dominican Republic, stockbrokers need to take the official SIV test (similar to the Series 7 exam) in order to get a license to trade. The three act as a system of checks and balances in order to maintain market stability and protect investors.
Among financial products that both international and local investors can invest in are Open-End mutual funds, Close-End funds (including REITs), commercial paper, structured notes, mortgage-backed securities, sovereign bonds, sell-buy backs, corporate bonds, and other fixed income securities. All issuers are well known companies and public institutions with solid credit ratings (Feller Rate, Fitch and Pacific Credit Rating). Investing in the Dominican capital markets is an ideal way to diversify your international portfolio and generate great returns in investment-grade financial products.
The actual stock market regulation (Securities Market Act 19-00) is currently being revised by the corresponding authorities in order to incorporate more investment vehicles for both local and international investors.
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