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The Trinidad & Tobago Business Guide (TTBG, 2009-10)

34 TTBG

34 TTBG 09/10

FINANCIAL MARKETS A year to remember Trinidad and Tobago’s markets tended to take fright in the second half of 2008, but confidence and optimism could well return during 2009 By Nesha Debysingh It was a historic year. Global financial markets came under extreme strain after the US financial crisis, triggered by the bursting of an incredibly inflated real estate bubble, led to recession and sparked global panic and economic slowdown. The net effect was mounting investor fears, unprecedented volatility, and steep declines in the value of all major asset classes. Local capital markets, which initially demonstrated impressive resilience in the face of a deteriorating international economic picture, eventually succumbed in the latter half of 2008. Stock market A relatively flat first quarter 2008 was followed by a remarkably buoyant second quarter. The Trinidad and Tobago Stock Exchange (TTSE) composite index was up a notable 17.13 per cent by June. However, this bullish trend was reversed completely during the last two quarters of the year, resulting in an overall return of -14.16 per cent for 2008 (see graph 1). The All Trinidad and Tobago index compared favourably, reporting a decline of 3.83 per cent for the same period, highlighting the substandard performance of cross-listed stocks. The first quarter brought closure to two major transactions on the regional stock exchange. After a very intense bidding war between Ansa McAl and Neal and Massy, the future of Barbados Shipping and Trading was decided by the end of the quarter, with Neal and Massy winding up its offer to purchase shares from minority shareholders. The other major event providing impetus for activity in the second quarter was the unanimous vote by RBTT shareholders to return the bank to its former owners, the Royal Bank of Canada (RBC). Activity spiked during the second quarter, with 28 stocks advancing and a mere five declining. RBTT shareholders looked forward to a combination of cash and share payouts by June 23: anticipation of this excess cash had many investors borrowing and reinvesting in the local stock market from as early as March. Combined with the fact that many companies had been trading Figure 13: Performance of the TTSE composite index 2008 at below fair value in the general lethargy of the local market over the last couple of years, this resulted in a spike, with the composite index reporting a quarterly return of 15.06 per cent. This impressive show of resilience in the face of the turmoil in international stock markets coincided with a welcome run up in oil prices, which peaked at US$145.29 per barrel on July 3. However, Trinidad and Tobago’s apparent immunity to the effects of the global economic slowdown disappeared rapidly as a subsequent spiralling decline in international oil prices triggered panic and loss of confidence among local investors. This provided juicy fodder for speculation about the probability of a contraction in the local economy and a general fear of holding risky assets, which included TT equities. Contributing the most to the decline of the TTSE composite index in 2008 were the trading sector (down 28.71 per cent) and manufacturing II (down 27.17 per cent). Trading volumes increased significantly as selling pressures dominated. For 2008, a total of 135,289,997 shares traded, an increase of 13 per cent from 119,312,440 shares in 2007. Decliners outnumbered advancers, with 18 shares declining and 13 stocks advancing. The largest decliners were the National Commercial Bank of Jamaica (-60 per cent) and Prestige Holdings (-51.3 per cent). The steep declines in the second half of 2008 for fundamentally sound companies such as Sagicor Financial Corporation, Neal and Massy and Republic Bank left investors and other market players mystified. It was a clear example of irrational fear overriding what would otherwise have been seen as “once in a lifetime” buying opportunities. The Trinidad and Tobago Stock Exchange, in line with international standards, moved from three days a week to daily trading, though this did not seem to add any sustainable traction to overall market activity. There was also a proposal to trade depositary receipts on the local exchange. 09/10 TTBG 35

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