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

Figure 14: Performance

Figure 14: Performance of international markets 2008 first quarter of 2009, while open market operations and other liquidity-tightening efforts should abate. While this is still in the preliminary stage, it is a welcome move which could increase the number of traded instruments available to local investors, thereby adding depth to the market. The Trinidad and Tobago economy is expected to slow in 2009, but not necessarily contract; while investor sentiment and panic continued to dominate investing decisions, some renewed optimism seemed likely to return in 2009. The US economy, while weak, is expected to show some signs of recovery by the second half of 2009. Investors willing to invest now while companies are significantly undervalued could benefit from the rebound, on both the local and international stock markets. Bond market The local bond market faced an environment of high inflation and rising interest rates in 2008. Inflationary pressures remained elevated during the year despite the best efforts of the Central Bank. Headline inflation rose from a reported 7.6 per cent at the beginning of the year to 14.3 in November. Contributing most to this dramatic rise was the cost of food, which had jumped 29.8 per cent year on year by November. The Central Bank in response raised the repo rate three times during the year, moving from 8 per cent to 8.75. The cash reserve requirement for banks was increased a number of times, from 11 per cent in February to 17 per cent in September. The primary bond market was fairly active: nine bonds were issued by local companies at a total face value of TT$2.7 billion. Only one bond, with a face value of TT$1.2 billion, was issued by the government: a nine-year bond with a coupon of 8.25 per cent, to absorb the excess liquidity which was expected to enter the system with the purchase by RBC of RBTT Bank Limited. A bond was also issued in September by the Housing Development Corporation in order to fund aspects of the government’s accelerated housing programme. The much awaited secondary bond trading platform was officially launched in January 2008, a centralised trading function designed to market improve the efficiency and liquidity of the secondary market and ultimately encourage increased trading activity. However, this did not materialise: activity on the platform remained relatively dormant, and only 43 trades had taken place by November, with a total market value of approximately TT$166 million. The lack of new issues (both government and corporate) and the general “buy and hold” instinct of bond investors continue to weigh on the level of market activity. During 2009, we should see inflationary pressures moderate, given falling food prices and a commitment by the government to tighten spending. The Central Bank is unlikely to increase the repo rate in the Mutual funds Mutual fund providers in Trinidad and Tobago formed the Trinidad and Tobago Mutual Fund Association (TTMFA) in November 2008. Members include mutual fund providers, sponsors, trustees, distributors, investment managers, advisors and administrators. The TTMFA is intended to be a representative body of mutual fund practitioners, spearheading the development and growth of the mutual fund industry. The latest data from the Central Bank shows an improvement in the mutual fund industry, in line with the spike in stock market activity during the first half of 2008. At the end of March, total funds under management by major institutions stood at TT$34.9 billion. This represented an increase of 1.1 per cent over the previous quarter and 8.6 per cent over the same quarter of the previous year. These growth rates mirrored those of the money market segment, which grew to TT$29.1 billion at the end of the first quarter of 2008 from TT$28.8 billion in the previous quarter. The global credit crisis had a negative impact on the mutual fund industry as risk aversion levels among investors increased. In particular, the industry saw more redemptions in growth and income funds and other types of equity-backed mutual funds, and an increasing preference for the safer money market funds. This was reflected in the data from May 2008 which showed a decline of TT$23 million in the equity-based segment of mutual funds, compared with an increase of TT$62 million for the comparable period in 2007; money market funds increased by TT$646 million compared with TT$239 million. Yields on TT dollar-denominated investments averaged 6.2 per cent in 2008, higher than comparable US investments, Yields on TT dollardenominated investments averaged 6.2 per cent in 2008, higher than comparable US investments, which yielded about 5.05 per cent. The weak performance of mutual funds is expected to improve by the second half of 2009, when the economic environment begins to show sustained signs of improvement and confidence returns to the 36 TTBG 09/10

Nicholas Towers, Port of Spain, home of the Trinidad and Tobago Stock Exchange which yielded about 5.05 per cent. The weak performance of mutual funds is expected to improve by the second half of 2009, when the economic environment begins to show sustained signs of improvement and confidence returns to the market. Mortgage market Like the US market, the local residential housing market has grown robustly for the last ten years. High oil prices, strong growth in personal incomes and vigorous economic growth created ideal conditions for the local property market. According to the Central Bank, the total dollar amount of real estate mortgage loans outstanding both from private and public institutions increased from approximately TT$5.6 billion in 1995 to roughly TT$8.9 billion in 2005. Residential housing prices increased on average by 13 per cent per annum between 1992 and 2006. However, the latter half of 2008 and the outlook for 2009 present a dramatically different picture. The economy is facing lower oil prices, slowing demand for commodities, double-digit inflation and high interest rates. As a result, the mortgage market has begun to show clear signs of slowing. According to data from the Central Bank, total outstanding real estate mortgage loans grew by 10 per cent between October 2007 and October 2008, compared with 13 per cent in 2006-07. Another factor suppressing growth in mortgage loans was the rise in average mortgage rates, which stood at 12.75 per cent at the end of September, a full 100 basis points higher than a year earlier. According to the Association of Real Estate Agents, housing prices basically levelled off during the latter half of 2008, and the outlook for 2009 is for flat to lower home prices, depending on the extent of the slowdown in domestic economic activity. Nesha Debysingh is Portfolio Manager at CMMB Securities and Asset Management Limited 09/10 TTBG 37

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