ALAN Greenspan gave us a word that has left less than a sweet taste in any investor’s mouth. Conundrum. On hearing or saying it, one immediately conjures up a feeling of insecurity; it is as if you almost feel afraid.

Investors hate uncertainty and when this is present in the market, confidence is shaken and there is an almost immediate flight to safety, with the whole marching band behind.

I have never in my nearly 20 years in the financial sector seen the kind of uncertainty in the market as we are experiencing today. So many uncertainties exist in almost every sphere, from talk of a double dip recession, to Greece and the stability of the European financial system, and the effect of these occurrencies on the emerging markets.

Interestingly, our economy seems to be oblivious of all of this. Ralston Hyman, our own well-known financial analyst, a couple weeks ago, after assessing the situation, voiced my thoughts that the appreciation in the Jamaican dollar is somewhat antithetical. How can an economy with a fiscal deficit as large as ours, with slowing GDP growth prospects, a massive debt to GDP ratio, a serious and worsening trade imbalance, and amazingly with almost monthly significant reductions in interest rates, be having an appreciation in its dollar? The dollar peaked at J$89.77:US$1 in February 2010 and, except for a few short periods of volatility, has been on an upswing ever since. At the current rate of J$86.18:US$1, this represents an appreciation in the Jamaican currency of approximately four per cent over a five-month period, against the mighty United States dollar. Only in Jamaica!

This appreciation, Mr. Hyman postulates, may cause some serious repercussions in the economy. Under some circumstances, an appreciation in a country’s currency could be a good thing, but the fundamentals need to be right in order for this appreciation to be beneficial to the economy. Our fundamentals as alluded to above are stacked in the wrong direction to what is necessary to take advantage of this appreciation.

Undoubtedly, this situation will have some telling effect on the behaviour of the investing public, and financial advisors now have to put themselves in a position to adequately advise clients on the implications of this new phenomenon. This puts a very heavy burden on financial advisors because of that very word mentioned in the first paragraph above. The conundrum being experienced has made it almost impossible for financial advisors to confidently and accurately advise their clients to invest in anything which is less than risk-free, because of the inability to adequately assess, let alone predict such a volatile market.

In addition, some investors, though only a few, in my experience, have themselves become a little wary, intolerant even, of investments which usually carry the highest investment grade ratings from some of the largest, most respected ratings agencies in the world which were once held as instutitions of high repute. This is so because over the past five or so years, investors have had their confidence shaken by the indiscretions of these ratings agencies, and advisors now have the arduous task of convincing investors not to throw out the baby with the bath water.

But, even with the now frequent talk of a double dip recession, I would want to implore investors not to be discouraged by these events, but to invest wisely during this period of grave uncertainty; and this may mean stocking up on some of those formidable fixed income investments.

Nobody knows how things will unfold in the next two years, whether the predictions of double dip recession will become reality or whether measures being put in place in North America and Europe will be sufficient to stave off this occurrence. What, however, is obvious is that there are no clear, current signs of improvement in the world economies; rather, the signals are clearly pointing more to a worsening scenario, hence the douple dip theory. The last recession has not yet fully filtered through to the Jamaican experience and should a double dip occur, would that mean a double whammy for Jamaica?

And so, in this period of much uncertainty, investors should be wanting to stay safe and to watch for positive changes which will bring opportunities, and be ready to seize those opportunities when they arise.

Pamela Lewis is Manager, Investment & Client Services at Sterling Asset Management Limited. Sterling provides medium to long term financial advice and instruments in US and other world market currencies to the corporate, individual and institutional investor.

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