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Friday 6 December 2019
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Market hits $233b

TTSEC review of financial investments

Figure 11: Market Capitalization of the TTSE Listed Equities, (TT$Million)
Equity market
There were 37 equity securities listed on the TTSE as at the period ending June 2019. The total value of these securities, as measured by market capitalisation, rose by approximately 5.1per cent (TT$6.89 billion) as at March 2019. The value also increased by 12.8 per cent (TT$15.97 billion) for the 12-month period June 2018 to June 2019 (Figure 11).
 - ttsec.org.tt
Figure 11: Market Capitalization of the TTSE Listed Equities, (TT$Million) Equity market There were 37 equity securities listed on the TTSE as at the period ending June 2019. The total value of these securities, as measured by market capitalisation, rose by approximately 5.1per cent (TT$6.89 billion) as at March 2019. The value also increased by 12.8 per cent (TT$15.97 billion) for the 12-month period June 2018 to June 2019 (Figure 11). - ttsec.org.tt

Kiran Mathur Mohammed

kmmpub@gmail.com

The numbers are out, in that most scintillating of publications, the TT Securities & Exchange Commission bulletin. Time for the market round-up. Even if you don’t directly own stocks or bonds, chances are your pension fund, mutual fund or insurance scheme does: the local market hit $233 billion as of June this year.

Managed funds like the Unit Trust Corporation or Guardian Asset Management control some $54.5 billion, a number that has barely moved year on year up to June 2019, apart from a drop in the third quarter of 2018 as people cashed out to buy National Investment Fund bonds that allowed the State to borrow against their CL Financial assets.

Where are they putting your money? Government and state agencies’ bonds are still seen as the least risky local investment, accounting for 50 per cent of their portfolios as at June 2019. Fourteen per cent are in local stocks, with the remaining 34 per cent in international securities.

Figure 10: Value of GORTT Bond Issues, (TT$Million)
Government bond market
As at June 2019, there were 43 TTD denominated government bonds in issue at a nominal value of TT$32.3 billion. For the 12-month period, June 2018 to June 2019, the value of the bonds issued decline by 2.7 per cent (TT$0.91 billion). - ttsec.org.tt

How are those investments faring? Government bonds remain stolid and relatively safe, despite a 2.7 per cent year-on-year decrease up to June 2019, a credit downgrade by rating agency Standard & Poor’s and competing returns from corporate stocks and bonds.

Our publicly listed companies had a good year – increasing by 12.8 per cent between June 2018 and June 2019. A combination of strong returns and new issuances, including a 24.6 per cent increase in financial industry bond issuances attracted investment to corporate securities, which rose by 10.4 per cent. Government will add to that if it continues its promise to further monetise the CL Financial assets next year.

Our strongest companies are gradually repositioning themselves towards exports, and our banks continue to post margins that would be the envy of Goldman Sachs or JP Morgan. But no small part of our stock market success has been a lack of alternative investments and a lacklustre property market that in headier times would have hoovered up cash. Until companies find new businesses, the underlying fundamentals of our stock market are still tied to our local economy.

That means gas. Gas production is the single biggest determinant of TT’s growth. Oil has a relatively small impact. And gas prices have remained stubbornly low. Our only option is to get more of the stuff out. At about 3.6 billion cubic feet per day, production remains well below the four billion needed to meet the demand of Point Lisas’ petrochemical plants. This continues to stifle the energy sector, with Yara's recent plant closure just another symptom.

That said, according to Thackwray Driver, CEO of the Energy Chamber: “Current projections indicate continued growth through 2021, when production is predicated at 4.14 bcf/d, meeting expected demand from existing plants.” BHP’s 3.5 trillion cubic feet find could be monetised in six years, and BP’s recent find should help to keep the lights on a little longer. But we won’t feel much of this in the short term. Most of our gas finds are keeping us on the treadmill rather than boosting the speed of growth.

The name of the game remains along the lines of the 1.9 per cent growth that we recorded in the first half of 2019.

We’re still small and open, so it is worth keeping one eye on the trade wars between the US, China and Europe, beyond their direct impact on international portfolios. Brexit is dragging down an already sluggish UK and Europe. Our imports might get more expensive and downward pressures could weigh on gas prices. Foreign investment might become more skittish and averse to emerging markets.

Figure 6: CIS Portfolio Composition by category of security
TT Government Securities
On average, investments in local government securities and state agencies were approximately 50 per cent of the CIS market’s portfolio composition. The value of these investments declined marginally, 0.02 percent, from March 2019. - ttsec.org.tt

If we look away from the north, though, we might be surprised that some of the biggest deals in the last two years have brought investment from Mexico (Trinidad Cement Ltd’s acquisition by Cemex), Jamaica (Guardian Holdings’ acquisition by National Commercial Bank) and Colombia (First Caribbean International Bank’s acquisition by the Gilinksi Group).

Have we been channelling our energies into relatively indifferent American and European investors when there is a potentially untapped source of investment right next door?

All in all, the local market continues to be relatively illiquid and less susceptible to drastic shifts. Ownership remains concentrated in the hands of the main institutions or investors. This is encouraged by our market’s relatively high dividends – a sign by the way that many of these companies are not investing or betting on future growth.

In this context, what should we do with our savings apart from the “stuffing the mattress” method? First off, 91 per cent of fund managers have failed to beat a basket of the US Standard & Poor’s 500 main publicly listed companies over the last 15 years. Most of us have nowhere near their levels of market attention or sophistication. The approach should simply be, invest in the market as a whole and pay the lowest fees, an approach endorsed by none other than investor Warren Buffett.

Figure 1: Market Size by Segment, (TT$ Million)
Assets Under Management
Analysis of the data submitted by collective investment schemes (CIS) managers indicates that the total value of assets under management (AUM) as at June 2019 was TT$54.46 billion. This represents an increase of 1.9 per cent in AUM (approximately TT$1.02 billion) from March 2019. - ttsec.org.tt

Exchange traded funds typically allocate funds in proportion to the entire stock market, instead of picking particular stocks. They typically have lower fees and greater diversification.

The approach should be to keep as little cash as possible – just enough cash for ongoing expenses and a little cushion for unexpected surprises. If you have TT dollars, you stick part of it in an exchange trade fund such as Unit Trust’s Calypso Fund, with the remainder in relatively less risky TT government bonds. The same advice applies for US currency – invest part in US government bonds and part in an S&P500 Index fund.

You can do either of those by opening a brokerage account with a bank or broker, or by directly going to a broker. Typically, the more risk averse or older you are, you allocate more of your funds to government bonds and less to equities, and vice versa. Then, you hold onto it. Assess your returns over years or decades – not quarters. Don’t obsess or rush to sell. You shouldn’t have to be thinking about your investments day-to-day. Be boring, prudent and happy, and you might not end up doing too badly either.

(
Source: TTSEC Securities Market Bulletin November 2019)

Kiran Mathur Mohammed is a social entrepreneur, economist and businessman. He is a former banker, and a graduate of the University of Edinburgh.

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