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El Salvador: Keys to Understanding Wealth Management

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Understanding the local rules

El Salvador is not considered an ‘investment grade’ market, which means that it may be more difficult to conduct investment business in El Salvador, due to issues such as political instability, corruption, crime or inconsistent application of the rule of law. If you intend to manage your wealth in El Salvador, it is recommended that you seek the advice of a finance professional or wealth manager.

These are general risks that may be present to a greater extent in economies that do not have ‘frontier’, ‘emerging’, or ‘developed’ status. Therefore, a finance professional or wealth manager who has a deep understanding of the risks and opportunities in the local market is invaluable. Not only can they help you navigate red tape and length procedures, but they can provide helpful warnings and help to safeguard your assets from risk. 

If you’re an ex-pat who has recently moved to a new country then it can take a great deal of time to learn the ‘way things work’ and understand how the local culture permeates the different facets of personal finance. With a professional team on your side, you can get up to speed in a jiffy without fear of making a ‘newcomer’ mistake. 

Exploring equity markets

Domestic investors tend to prefer their local equity market, usually represented by the stock exchanges domiciled in the same country. 

For El Salvador, this is the Salvadoran Stock Exchange (BVES), which was founded in 1992. Its market cap is rather limited compared to international peers, with fewer than 50 companies listed, with a trading volume of roughly $1 billion annually. BVES does not have an internationally recognised index that we can use to monitor the performance of this market historically. 

For the purposes of additional diversification, investors will build a portfolio of companies based locally but also international firms to bring greater stability to the portfolio. Although foreign companies will be priced or denominated in a foreign currency – this is less of an issue for locals because the El Salvador economy uses the US dollar, so no foreign exchange gains or losses will be experienced if local investors allocate their wealth to US stocks. 

Choosing a local banking partner

Statista.com reports that the three largest banks by assets in the country are Banco Agricola, Banco Davivenda Salvadoreno and Banco de America Central. You’ll note the absence of the largest global banks such as HSBC, Barclays, Santander or Wells Fargo in this shortlist. This shows how it’s the local service providers which have the strongest hold within this sector. 

Western banks haven’t felt like they have been treated fairly in this market recently, with HSBC going as far as to bring legal action directly against the government of El Salvador for what court documents call a breach of the “El Salvador-United Kingdom Bilateral Investment Treaty.”

In such an environment, your advisers may suggest that you use institutions that are in favour of the authorities to try and avoid becoming wrapped up in disputes of this nature. 

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