At the end of an unusually long life, Cuban revolutionary and dictator Fidel Castro is dead. Speculation has existed for decades about what would happen with the Cuban market once he had passed. While the Cuban government is still, for the moment, securely in the hands of Raul Castro things are slowly changing economically. Relations between Cuba and the United States are starting to normalize, and with that is the hope of access to the Cuban economy. If Cuba develops even a semblance of a free market system, trade with the United States and Caribbean nations could change things in a positive direction. The shareholders of Herzfeld Caribbean Basin Fund would probably agree. Trading under the ticker CUBA, the stock went up 10% shortly after the announcement of Castro’s death according to CNN.
CUBA is a mutual fund that invests in business in the Caribbean region. While it does not currently invest in business in Cuba, if the opportunity opens it is a likely possibility. Currently the fund invests in businesses that are highly affected by regional developments in the Caribbean. They hold stake in companies like MasTec a construction company started by Cuban immigrants to the U.S as well as Royal Caribbean, Norwegian, and Carnival, three of the most popular cruise lines in the region. As relations with Cuba continue to improve, stocks with interest in the region are likely to continue to appreciate. In 2014 the fund nearly doubled its value in a week, after President Obama announced restoration of relations with Cuba.
Cuba still has a great deal of modernizing to be done, which means opportunity for funds that invest capital in a growing Cuban economy. Investors will be keeping an eye on stock involving construction, telecommunication, travel, and hospitality that may cater to the region. Cuba’s economic potential is far from a matter of speculation. In 1958 according to Investopedia Cuba had the 8th highest wages in the world, it had a higher per capita income then Austria and Japan and was a consistently popular tourist destination. Before the revolution Cuba had its own stock exchange, which was one of the largest in Latin America. Resurrection of the Havana exchange may be closer than most people think, if the politics are right. In an interview with CNBC, the chairman of Miami-based Thomas J. Herzfeld Advisors and the Caribbean Basin Fund, Tom Herzfeld, said that the establishment of a Cuban stock exchange could happen in the next three to five years. The opportunities for investors and businesses is very large if Cuba is open for business. Herzfeld added that “The entire country of Cuba will need to be rebuilt, and there will be investment opportunities across all these industries.”
The Cuban economy is in dire need of free market solutions and opportunity. With a flood of investors, Cuban entrepreneurs, and foreign businesses will be have the opportunity to dramatically rebuild the country. The rebuilding will not happen overnight, and investments in funds like CUBA should not be thought of as a get rich quick scheme. The benefit of these investments is their long-term potential. It is not unlikely that CUBA and funds like it will continue to see spikes in increased value as relationships improve between Washington and Havana.
Normalized trade relations between Cuba and the U.S will not only benefit the bottom line. The free market is one of the strongest forces supporting responsible democratic government and human rights. Even in non-democratic countries like China, access to international markets and trade has begun creating a middle class that expects more political choice and transparency. It is entirely plausible that a shift toward these principles will occur in Cuba in a similar manner.
It is easy to wonder what would have happened had we lifted sanctions sooner. Along with American goods often come American ideals and values. In many ways, the sanctions that were held on to were largely ineffective and counterproductive. Hopefully in the interests of both Cubans and Americans that mistake is about to come to permanent close. If the markets are opened, the ending of Fidel Castro’s life may mean a new one for Cuba.
Follow this author on Twitter @RealRobertOwens