JPMorgan, a U.S. investment bank, has recently lowered its recommendation on Panama's bonds following an escalation in U.S. President Donald Trump's threats against the Panama Canal. The Central American country's bonds have faced challenges since Trump's campaign promise, with JPMorgan's analysts noting an increased sense of importance after the canal featured prominently in his inauguration.
The analysts warned of potential market sensitivity to headline risks due to uncertainties surrounding the issue, emphasizing the lack of clarity regarding Trump's endgame. Consequently, JPMorgan downgraded Panama's bonds from "overweight" to "market weight," advising investors to reduce their exposure.
Concerns have been raised by others as well, such as research firm Tellimer, who highlighted the significant role canal-related revenues play in Panama's government income. The canal, a crucial transport route between the Caribbean Sea and Pacific Ocean, supports a substantial portion of Panama's GDP and global seaborne trade.
With Trump's actions potentially impacting Panama's canal revenues, bond investors fear a further credit rating downgrade for the country. Currently already facing a downgrade to 'junk' by Fitch, Panama risks being excluded from important investment grade-only bond indexes, leading to potential sell-offs.
While Panama's economy is projected to grow by nearly 5% this year, the uncertainty surrounding Trump's stance on the canal raises concerns about its credit rating. JPMorgan's analysts acknowledged the shifting dynamics, recognizing that the present situation may not align with previous expectations.