Throughout the Caribbean region, the economic fundamentals have not shown any major signs of improvement in the first three months of the year. The Trinidad and Tobago economy remains sluggish against the backdrop of sustained weakness in credit demand. According to the Central Bank of Trinidad and Tobago (CBTT), demand for private sector credit declined by 4.1 per cent in the twelve months to January 2010 as loans to consumers and businesses have contracted. Simultaneously, banks have been maintaining elevated loan loss provisions as compared to their historical averages. Excess liquidity, averaging TT$1.6 billion during the first quarter, should continue to support low interest rates for most of the year. Given the continued weakness in the economic environment, corporate earnings have been negatively affected across the range of sectors, including Banking, Trading, Manufacturing and Conglomerates.

Indices Performance

Across the region, T&T and Jamaican equity markets have rebounded within the last quarter, while the Barbados market continued its decline from last year.

For the three month period, the T&T Composite and All T&T Indices increased 6.85 per cent and 6.03 per cent respectively. The Jamaican benchmark, the JSE Market Index, dipped early in the year as uncertainty surrounded the Jamaican debt exchange programme and the IMF intervention. It has since rebounded over 15 per cent from its low in the beginning of February, to end the quarter up 3.1 per cent. The Jamaican currency has been stable over the quarter, at around J$89-90 to US$1. The Barbados Composite and Local Indices declined 3.2 per cent and 2.2 per cent respectively over the period.

T&T Equity Review

Trading volumes were significantly higher in the first quarter of 2010 as compared to the same period in 2009, with 25.4 million shares trading; this represented a 45.1 per cent increase. National Commercial Bank Jamaica Limited, National Enterprises Limited (NEL) and Jamaica Money Market Brokers Limited (JMMB) accounted for 19 per cent, 15 per cent and 14 per cent of the total volumes. In dollar terms, the value of traded shares declined 37.5 per cent to TT$238.8 million for the quarter.

The T&T Composite Index rose 6.85 per cent in the quarter as the advances outpaced the declines. Of the 32 ordinary shares listed, 15 advanced, 6 declined and 11 remained flat over the period.

Of the 15 stocks that advanced, GraceKennedy Ltd took the lead, increasing by 50 per cent over the first quarter of 2010. NFM advanced 39.1 per cent, WITCO increased by 23.5 per cent, National Enterprises Ltd by 22.6 per cent and FirstCaribbean International Ltd by 19.9 per cent.

On the downside, Sagicor Financial Corporation (SFC) declined 14.0 per cent for the three month period. Jamaican cross-listed stocks, Supreme Ventures Ltd and JMMB fell 10.0 per cent and 9.4 per cent respectively, while local companies, Trinidad Cement Ltd and Guardian Holdings Ltd (GHL) slipped 8.8 per cent and 7.2 per cent respectively.

Barbados Equity Review

The Barbados economy has continued to suffer the effects of a slowdown in its tourism, manufacturing and trading sectors. The BSE Indices continued to underperform the T&T and Jamaica markets in the first quarter. Share price movement was limited with no stock increasing more than 10 per cent for the year. West India Biscuit Co gained 9.4 per cent, while Banks Holdings increased 5.0 per cent. Goddard Enterprises, Insurance Corporation of Barbados, and Cable & Wireless increased by 3.5 per cent, 3 per cent and 1.9 per cent respectively.

Jamaica Equity Review

The Jamaican equity market got off to a rough start in 2010 as there were some major economic issues to be resolved. However, once the IMF and the Jamaican Government settled on a Stand-by Arrangement and conditions such as the implementation of a debt exchange programme and financial reform, the market saw a steady upswing. The JSE All Jamaican Composite advanced 13.8 per cent and the Main Index rose 3.1 per cent for the quarter.

Trading activity in Jamaica for the first quarter of 2010 increased significantly over the previous year as the number of shares traded for the period increased by 230 per cent. However, this included a 1.3 billion trade in Supreme Ventures Ltd in January. Discounting this trade, the volume of shares traded for the period actually decreased by 18.74 per cent.

A number of stocks surpassed the JSE Main Index’s increase of 3.1 per cent increase for the quarter. Berger Paints lead the advances with a jump of 123.3 per cent, while GraceKennedy gained 64.2 per cent. Radio Jamaica and Mayberry Investments rose 56.7 per cent and 49.2 per cent respectively. Supreme Ventures advanced by 44 per cent.

Outlook & Recommendation

The run-up in the T&T equity market has occurred on a few stocks such as First Caribbean International Bank Ltd, Scotiabank Trinidad and Tobago Ltd, The West Indian Tobacco Company and NEL. Financial performance for companies across a range of sectors has continued to show weakness given the current economic downturn in the Caribbean region and as such the increase seems inconsistent. Going forward, the performance of the T&T Composite Index may be muted as the economic conditions are not expected to show any significant improvements this year. As more results are published, some correction may be seen in the market.

On the Trinidadian market, there are still a few stocks offering good value based on fundamentals. SFC, GHL and BCB Holdings Limited (BCB) offer relatively cheap valuations. At a current price of TT$10.10, SFC is trading at a P/E of less than 6 times (forward P/E of 8 times) and market to book of 0.87. The stock has never traded below TT$10, and this price may offer some resistance in the current environment. At TT$13.10, GHL trades at a trailing P/E of 7.9 times on operational earnings and market to book of 1.1. BCB is highly undervalued on a fundamental basis with a trailing P/E of 3.3 times, lower than its Banking sector peers. The market to book of 0.5 is also attractive.

The 2010 financial year will be a challenging one for Barbados given that the country’s primary revenue generator is tourism, a highly cyclical sector. IMF estimates are for GDP growth to be negative 3.5 per cent in 2009, with zero per cent and three per cent growth in 2010 and 2011 respectively as the world economy recovers. As such, equity markets are expected to remain muted in the short-term. The market remains highly illiquid, but for the long-term investor there may be a few potentially attractive opportunities. Companies such as Almond Resorts, Banks Holdings, Goddard Enterprises, the Insurance Corporation of Barbados and Light & Power Holdings are some of the more attractive stocks at this time. This would have been reflected in the first quarter performance.

One must remain cautious on the Jamaican market as the impact of the Jamaica Debt Exchange programme on companies’ performance and investment portfolios is yet to be seen. This will be reflected the results for the quarter ended June 2010 and there may be some correction. Post-results and any correction in stock prices, some stocks may offer better value. After a significant decline in the equity market in 2009, some of these companies may be relatively attractive given the lower stock prices. 

RECOMMENDATION- We have been cautious on Jamaica and maintain a HOLD recommendation on this market, at least for the short-term. The current exchange rate levels of around J$89 to US$1 may not be sustained as the Bank of Jamaica has limited reserves to continue supporting this rate.