The impact of the National Debt Exchange (NDX) is sure to be felt on personal investment portfolios within the coming months, wealth advisors say.
With the Government's debt swap set to shave an average of two percentage points off interest rates on $860 billion of domestic debt, wealth advisors suggest that individuals re-assess their holdings and consult tax specialist to determine the level of impact it will have on their investments.
"It is financially prudent that investors obtain guidance on the way forward," BCW Capital's Joel Gordon said, adding that though it is early days yet, investors should expect a certain amount of contraction as the economic consequences of the NDX begin to sink in.
Under the NDX, the income tax on dividends payable to residents will be increased from the previous five to 15 per cent.
Additionally, Jamaican residents, which receive dividends paid by a non-resident company, should account for and pay income tax at the rate of 25 per cent for individuals and unregulated companies, and 33 1/3per cent for regulated companies, subject to the provisions of double taxation treaties.
As a result, "the tax measures will affect listed companies in terms of their bottom lines and their free cash flow available to pay dividends," said Nicole Thompson, adding that investors who rely on dividend income should expect to take a hit.
The Victoria Mutual research manager added that the hit on dividends could turn out to be a "double-wammy" as some companies may have to lower their dividend payouts to investors.
For Gordon, the consequences of these effects on individual portfolios are best calculated with expert advice.
"It may also become necessary for individuals to change their mind-set on their consumption pattern," Mayberry's wealth advisor Damion Wizzart said.
Referring to the impending tax changes as "a new paradigm in the investment landscape", Wizzart suggested that individuals "look to diversify their holdings", a point Thompson also agreed on.
"Investors who have the capacity to do so could seek to diversify out of Jamaica and Jamaican dollar instruments," she said.
While noting that the tax package does not appear to be conducive to increased investment activity, Thompson said that a resultant effect could also be "an increased appetite for variable rate bonds in favour of fixed rates", as another means of portfolio diversification.
Unlike Wizzart, who opined that the air of uncertainty, which clouded investor outlook, has been removed with the revelation of the NDX, Thompson suggested that NDX could exacerbate the sluggishness currently permeating the markets.
"Although local stock prices appear attractive, it is unlikely that investors will be inclined to venture into this market," she said.
Investors are however being urged to retain their holdings, as according to Thompson, "it would not be wise to dump their holdings at this time, as this could translate into realized losses".