There is little doubt that the domestic economy remains in the doldrums as a result of a number of factors including the fact that, to a large extent, the local and foreign private sectors have refrained from undertaking the large, highly capitalised projects to which T&T has become accustomed. At a news conference earlier last month, Central Bank Governor Ewart Williams revised downwards the institution's estimate of the growth in the economy during the 2011 financial year to one per cent.
And he made it clear that that marginal growth was predicated on the Government accelerating the pace of its infrastructural programme during the second half of the financial year-from April to September. While there is yet no evidence that the dark clouds that Finance Minister Winston Dookeran is fond of speaking of have blown away from T&T, there is one bright spot in the economy that should be recognised as it may presage the proverbial brighter day. Based on yesterday's numbers, the composite index of the T&T stock market has advanced by close to 11 per cent in the first five months of 2011.
The performance of the shares listed on the local market-which includes T&T shares as well as the shares of companies headquartered in Barbados, Jamaica and Belize-means that, on average, local stocks have rewarded the investors who ploughed money into them more than the average investor who went chasing returns on some foreign stock market. While local stocks returned 11 per cent, the S&P index in the US has risen seven per cent for the first five months of the year while the Dow Jones Industrial Average has recorded an 8.6 per cent gain for the year.
The factors responsible for the T&T Stock Exchange returning 11 per cent in five months include an improvement in the results of some of the bellwether stocks, a dearth of investment opportunities earning returns above the rate of inflation, and the availability of "cheap" money. While it is true that the economic conditions seem to be propitious for the ownership of stocks, the local stock market retains many of the characteristics that analysts have complained about over the last two decades: a small number of listed companies and a small number of active individual investors with a relatively small number of shares being traded on a daily basis.
Added to this is the fact that, to a large extent, local institutional investors (which includes the mutual funds and the pension plans) have retained a minimal presence in the local stock market ever since the Central Bank took the decision, seven years ago, to limit the concentration of local stocks in the portfolios of domestic pension plans. Clearly, it is in the Government's interest to promote a healthy stock market as this is one of the ways that the people of a country can increase their wealth over the long term.
A proper-functioning stock market, in a small, open economy like T&T's, may also serve as a mechanism through which the Government can soak up excess liquidity and it may also provide an incentive to those who wish to retain their holdings in the T&T currency rather than indulging in capital flight. Given the manifest advantages of a strong stock market, the Government would be well advised to ensure that mechanisms are put in place to ensure that the growth in the local stock market can be sustained over the medium to long term.
Some of these mechanisms include ensuring that some of the State's more profitable companies are divested into the hands of T&T nationals and encouraging share ownership through a financial literacy programme similar to the one started by the Central Bank some years ago.