Expect an improved economic performance over the next six to 12 months predicts Sarodh Ramkhelawan, executive director and chief investment officer at Bourse Securities.
Even as the International Monetary Fund is warning of one of the worst recession to hit the world in 50 years is about to occur, Ramkhelawan argued that T&T is emerging from a very tough position and with our major agenda drivers like oil and natural gas prices strong, there should be growth and it should also spur investor confidence in the local stock market.
“Barring some very significant turnaround in the energy markets we should have positive GDP growth in the economy. And of course, we anxiously await the budget speech which is sometime in September/October and I think that creates a feel-good factor for investors. That may be tempered to some extent by pronouncements from the state level, yes, we are receiving an energy windfall, but we are coming out of a very difficult place over the past couple of years, but generally I think, the energy windfall and that trickle down effect to the wider economy could spur a bit of consumer spending. It may be offset a bit by the rising cost of living with inflation particularly eroding purchasing power, but generally there seems to be a better investor sentiment based on the current energy environment,” he posited.
Ramkhelawan said based on the current environment he sees continued strong energy prices through at least the next six months.
In an interview with the Business Guardian, Ramkhelawan explained while global stock markets have been bearish he has already seen signs that there is some settling globally and Bourse was predicting a higher stock market by the end of the year.
“I think, certainly at the international level in the next six months to maybe a year it will be higher than where we currently are. I can’t say how much higher, but the tone and the investor sentiment is starting to shift it would seem. So I think there’s positive momentum building. The second question is with respect to stocks, in the local market you’re talking about?
So we actually like First Caribbean International for the reason that it’s probably the most attractively valued banking stock, it’s one of the largest regional financial services firms operating across the Caribbean. Three, it pays an attractive dividend yield north of five per cent. And four, it is a TT dollar asset that actually pays dividends in US dollars. So that serves as an attractive value proposition for investors,” Ramkhelawan told the BG.
He also posited that the TTNGL stock may be a good investment with the energy outlook positive and the attempts by its underlying asset, Phoenix Park Gas Processors Limited, to diversify internationally with acquisitions in US.
“So they have been looking at long-term growth outside of Trinidad and Tobago, which may be constrained a bit given our energy production woes but certainly TTNGL is being very progressive through their investee company and diversifying internationally,” Ramkhelawan pointed out.
He argued that the T&T stock market has been performing better than some of the international players. According to Ramkhelawan the T&T index, which is our locally listed homegrown companies, at June was down just about 2.4 per cent on average.
“So when we compare that to the Standard and Poor’s index, for example, being down about 20 per cent notwithstanding the fairly significant challenges across the entire global economy and global financial markets, I think in that context it wasn’t a bad performance so far.
“The composite index, which also includes the cross-listed companies that’s down about seven and a half per cent. And that was really driven by a major decline by cross listed companies such as NCB Financial Group, First Caribbean International, and some of the others which collectively were down on an average of 21.1 per cent. So, regionally there has been a bit of weakness, but with respect to homegrown companies, they have held their own in a very challenging environment,” Ramkhelawan told BG.
He said the better performance by the T&T financial sector compared to other regional financial institutions may be as a result of many things including company leverage, returns on assets, return on equity and valuation levels across the banking sector stocks.
In relation to First Citizens Group’s recent additional public offering, Ramkhelawan said he was not surprised by the interest in the stock because banking represents the largest sector on the T&T Stock exchange, accounting for over 50 per cent of the total value of all the stocks on the TTSE so it is a natural attraction, particularly for institutional investors and individual investors as well.
“When you think about banks, you think stability, you think strength and while it’s not certainty, there’s a higher degree of stability as mentioned in terms of the operating environment. I think that First Citizens, the correction in price really in some ways is in similar fashion to maybe NCB, would have been a rationalisation of what the stock might be worth. It’s come to a level. That $50 price while it’s not necessarily a steal of a deal but it’s not bad value either. So for those in it for the long haul it represents a good addition to a portfolio,” Ramkhelawan argued.
With the decline in equity and bond markets in the US Bourse Securities Chief Investment Officer was asked what should be the approach of the managers of the T&T Heritage and Stabilization fund?
Ramkhelawan said, “The famous saying is, you buy fear and sell greed and certainly, there’s a lot of fear pervading markets right now. There is that very bearish sentiment, it seems as thought there is no light at the end of the tunnel but that is probably one of the better times to buy and we also need to be cognisant that these periods typically are sharp and short, and they are very often followed by longer periods of positive and upward movements in asset prices. So while investors may be feeling a bit gloomy, they should not close their eyes to opportunities internationally and certainly look for bargains that are very attractive. Companies who have bonds and stocks out there that you should be adding to your portfolio at this time.”
He added, “I mean the investment managers certainly should be on their toes and may have shifted some of our HSF allocations into cash given what was going on, but they would not have shifted all of it so yes we should expect some downside. I think the HSF is about evenly split or maybe 60-40 between bonds and equities. Both asset classes have come under pressure, but the HSF typically invest in high quality assets so it’s really more about price risk than actual credit risk…. With respect to the equity portfolio, I do believe that they wouldn’t be dabbling in very highly speculative positions in companies as well. So buying quality and holding quality regardless of this particular down cycle in financial markets may just present an opportunity if there is cash available to add to the portfolio and hopefully if there was or there is going to be in fact, an injection into the HSF after a very long time it could present an opportunity, a buying opportunity, a good buying opportunity for the economy.”