How will T&T stocks perform in 2012?

 

The column, which was published on January 13, 2011, stated that I was “very bullish about the prospects of 2011 being the best year for owning stocks since 2004, which was the last full year before the impact of the Central Bank decision to limit the investment by pension plans in local equities.” The commentary referred to the fact that the Central Bank was “certain to cut the reserve requirement and put a serious dent in the cost of money in order to kick-start the local economy,” that the yields on money market accounts would remain below two per cent and the rates on deposit accounts are below one per cent. While the verdict remains to be given on whether the dark cloud of self interest has been blown away, it is clear that, as predicted in this space, 2011 was the best year for owning stocks on the T&T Stock Exchange in many years. The Composite Index added 177.23 points or 21.21 per cent to end the year at 1,012.87, which placed local stocks within the top five performing stock markets in the world last year.

 

Statistics sourced from the WISE annual report indicate that 564,087,946 shares were traded in 2011 compared with 77,562,527 shares in 2010 and that the value of shares traded rose a considerable 19.02 per cent from $864.5 million in 2010 to $1.02 billion in 2011. Three of the top five advancing stocks on the local market in 2011 were Jamaican: JMMB; CCFG and NCBJ, while two of T&T-domiciled stocks—National Enterprises Ltd, which advanced by 46 per cent from $10.28 to $15 and Prestige Holdings Ltd, whose value increased by 48 per cent from $4.27 to $7.

 

What about 2012?

The same factors that contributed to the performance of local stocks in 2011 are still in play this year.

Interest rates are expected to remain low, as the Central Bank is not expected to increase the repo rate in advance of moves by the US Federal Reserve to hike the cost of money in the US. This means that people who leave their investments in money market funds or on deposit are going to see a depreciation in the value of their savings or investments in 2012 as a result of the rate of inflation, which is not expected to go above seven per cent this year. One issue to note is this: because share prices for many local stocks increased last year, many of the companies on the T&T Stock Exchange are trading at or near their five-year price/earnings multiples. This means, in my view, that in the absence of outstanding results, many of the shares are fairly valued with little upside potential. As was the case last year, the best possibilities for investors with long-term horizons would be the local stocks that pay out a significant percentage of their earnings as dividends.

 

The outstanding shares in this regard are National Enterprises Ltd, The West Indian Tobacco Company and Uniliver Caribbean. The dividend yield on these shares exceed money market and deposit rates and there is a distinct possibility that all will experience capital gains this year. In terms of the combination of dividends and capital gains, Republic Bank, Scotiabank and ANSA McAL are also likely to be good investments for 2012.

There is one share for which I have great expectations this year. The stock is Angostura Holdings and it is in my portfolio because, in my view, it is quite likely to be the most under-valued share on the local market. 

Angostura is also likely to report a significant one-off gain when it reports on its 2011 financial performance in April as a result of the depreciation of the euro at the end of last year.  And it may start paying dividends in 2012—a move which was signalled by the company’s former chief executive office, Wayne Yip Choy, at the Angostura annual meeting last year.

 

What about First Citizens?

Everyone in the small, local investment market is waiting patiently for the initial public offering (IPO) of First Citizens, which may turn out to be as eagerly anticipated in T&T as Facebook is in the US. As someone who has lobbied on behalf of local stock ownership for years, I am looking forward to the IPO and hope that the distribution criteria in the event of over-subscription is fair and encourages the widest possible participation by the population of T&T and the T&T diaspora. Let me conclude by quoting the end of the January 2011 piece, which was referenced at the top of this column: “If the Government were to place state-owned bank, First Citizens, the Unit Trust Corporation, Phoenix Park Gas Processors, the National Gas Company and its stake in Government-controlled enterprises such as Republic Bank, Methanol Holdings, Angostura and Lascelles deMercado, it would reverse the demand for US dollars from investors seeking inflation protection and it would advance the solution of the Clico policyholders issue.”

 

Anthony Wilson is not an investment professional and anyone seeking to make investments in local stocks should seek professional advice. The author is the owner of Angostura shares.