With Massy Holdings Limited cross-listing to the Jamaica Stock Exchange (JSE) next month, more Trinidadians will have another route to access foreign currency in the dual-island republic.

Massy is currently listed on the Trinidad and Tobago Stock Exchange (TTSE) and will join the ranks of six other companies which are listed on both exchanges. In preparation for this listing, Massy’s board has proposed a 20 to 1 stock split for its January 21 annual general meeting. The stock has increased by 62 per cent since the cross-listing announcement in May and improved over the last week following Massy’s improved earnings.

Currently, investors buy securities on the TTSE and do an inter-CSD (central securities depository) transfer to move the shares to the JSE. They then sell these shares on the market and convert the Jamaican dollars to United States dollars to carry out their business. This works both ways with investors on the JSE being able to move their shares to the TTSE and sell it on their market.

As a result of persons buying up these stocks on the TTSE to get access to foreign exchange (forex), the TTSE prices usually trade at a premium to the JSE prices. Executive chairman of Mayberry Investments Limited Christopher Berry noted in a tweet on Twitter that this results in the prices of JMMB Group Limited (JMMBGL) and GraceKennedy Limited (GK) being depressed on the JSE. He explained that it is a pure forex play with the shares ending up back in local hands, but the Government of Jamaica losing forex to T&T. Though JMMBGL has increased by 10 per cent year to date on the JSE, it is up 17 per cent on the TTSE. GK is up 60 per cent on the JSE and 62 per cent on the TTSE. Both companies have seen a positive increase in their financial performance over the last two years.

Since not all securities have sufficient trading volumes, the stocks with the smaller spread and greater volumes between the two markets tend to see more interest by Trinidadians looking to transfer shares to Jamaica. This arbitrage is currently profitable for persons on the Jamaican side but a loss event on the T&T side. Massy President and CEO Elliott Gervase Warner stated in the most recent report that the company’s decision to cross list is to give shareholders/investors better access to hard currency from their trades. He also stated that it would also improve trading activity and expand the company’s shareholder base.

“The Jamaican economy is an open economy and Jamaica is a member of the Caricom Single Market and Economy and so there is no restriction on cross-listing of shares on regional stock exchanges. Bank of Jamaica is, however, always concerned about outflows of foreign currency from the economy that could cause instability in the foreign exchange market. We therefore monitor these and other flows and will respond if and when necessary to ensure that orderly conditions are maintained in the foreign exchange market,” sstated a response from the Bank of Jamaica (BOJ) on the use of the equity markets to access forex.

The BOJ, under the Bank of Jamaica Act, limits the amount of forex that entities, which are not authorised dealers, raise for the purpose of investing in foreign currency bonds and shares. These limits are specified by the Ministry of Finance.

The International Monetary Fund (IMF), in its staff concluding statement, called for the authorities in T&T to remove the restrictions currently in place for international transactions in a bid to modernise its monetary and exchange rate policy. Individuals who spoke to Sunday Finance mentioned how they have been waiting for months to access USD while another business detailed how they are limited to only access up to US$100 per day. Some businesses in Trinidad have to wait up to almost six months to access forex.

“The authorities are encouraged to modernise FX and money market infrastructure to reduce inefficiencies and imbalances to support the sustainability of the existing arrangements. Looking to the future, greater exchange rate flexibility would reduce the need for fiscal policy adjustments to restore external balance and create room for more countercyclical monetary policy. The mission encouraged the authorities to remove all restrictions on current international transactions while providing sufficient FX to meet demand for all current international transactions,” stated the IMF report. The IMF pointed to a strong recovery subject to high uncertainty in 2022 with a projected real GDP growth of 5.7 per cent relative to the expected decline of one per cent in 2021.

Renowned Caribbean economist Marla Dukharan has made mention in several reports that the TTD is the most overvalued currency in the Caribbean. Her analysis shows that were it not for the Government borrowing USD, drawdowns from the Heritage and Stabilization Fund and IMF injections, the country’s foreign reserves would be at US$1.85 billion which is just two months of import cover. T&T’s net official reserves have declined from a high of more than US $11 billion to just slightly around US $7 billion.

“You will see that up until 2012, the amount of TTD in circulation versus the amount of USD held in reserves to back the TTD had a ratio roughly equivalent to the official exchange rate. And this is what you want to see, to be assured of the validity of the exchange rate. But then in 2012 the central bank changed the way the exchange rate is determined, they stripped out any remaining market determination in the exchange rate, and they set it purely by policy decision. They even appreciated the exchange rate, just when oil prices were collapsing in 2014, and we were earning less foreign currency. So the black market rate and this ratio you see on the chart, both indicate that the TTD is overvalued at the official exchange rate,” stated Dukharan.

She further added, “I am of the view that the Gov’t in TT is mismanaging its finances. The fact that they can’t pay VAT refunds and they have a primary fiscal deficit suggests they are illiquid / bankrupt already, even though we have assets such as reserves and the HSF. My expectation is that the Govt will default by next year. The Government has created a massive distortion in the market by maintaining an overvalued currency and also restricting access to USD. You can’t set price and supply. The black market is therefore created and ‘sanctioned’ in effect, by the Gov’t. Businesses routinely get access to FX on the black market. According to the IMF, in 2017 the TTD was as much as 42 per cent overvalued. Another indicator that the TTD is overvalued, is the existence of a black market where USD are sold for more than the official rate (6.80 roughly), at about TTD7.00 — TTD8.00 / USD. The long-standing existence of black market means that the Govt is in effect subsidising the USD that it issues to the market.”

The official buying and selling rate by the Central Bank of Trinidad and Tobago (CBTT) was TT$6.7548. The spread between the buy and sell rates is usually very small compared to the official BOJ weighted average buy of $152.9315 and weighted average sell of $154.6051. The CBTT has maintained a repo rate of 3.50 per cent since March 2020 and has maintained an accommodative stance in the country. Inflation in T&T remains at 2.4 per cent compared to 0.9 per cent on a year over year basis with core inflation at 1.6 per cent.

— David Rose