By Lavern Clarke, Staff ReporterTHE MOVE to depress interest rates has seen investor funds flowing to the equities market, a development that has been reflecting in the strong performance of the stock market over the past two to three weeks, say local financial experts.
"The equities market has come back into focus because interest rates are trending down and several companies are doing very well," said Mark Walters, vice president of treasury operations at Dehring Bunting & Golding.
Claudette Crooks, vice-president of Corporate Finance at Guardian Asset Management, asked whether local investors were sticking to Government paper with interest rates going down, also said the funds were flowing to equities and that the change was reflected in the upward swing of the indices as well as the "strong advance/decline ratio" that currently characterises the Jamaica Stock Exchange.
The broad JSE index closed yesterday at 53,991.74, having advanced by over 480 points.
TRENDING DOWN
Interest rates have been trending down since June. The Bank of Jamaica reduced its open market rates three times, which effectively cut 10 percentage points off its 365-day maturities.
Its last cut in rates came behind the lowered treasury bill yield of 26.31 per cent on the $500 million July issue, which the BOJ identified as a signal that the market was not averse to the direction in which rates were moving. The open market rates on the 90 to one-year instruments now range from 18-26 per cent, while the 30 and 60 day instruments remained fixed at 15 and 15.3 per cent.
Walters said the market had anticipated the drop in rates a week before
the BOJ finally announced the cuts on Monday. Walters anticipates that Government wants to push rates close to the 19 per cent on which the budget was crafted.
Reactions from the private sector suggest that as far as business activities are concerned, the 10 point drop has little impact. Private Sector Organisation of Jamaica president Beverley Lopez said companies had already seen a fall in lending rates when the dollar went on its downward spiral in April/May.
Since then, the banks have been holding lending rates "as best they could" within a 20-24 per cent range, she said.
The PSOJ president said companies were looking for sure signs that the economy had stabilised before making any big investment decisions.
Jamaica Chamber of Commerce president, Michael Ammar Jr. says the rates are merely heading back to where they were earlier this year - the BOJ had hiked rates to 36 per cent at the end of the fiscal year, up from about 20 per cent - and that they would have to fall well below that point to excite businesses into investing.
OPTIMISTIC
But he was "reasonably optimistic-barring any major shocks" that this would happen, given the Government's commitment to continue reducing rates, recent signs of improvements in the economy, and the more aggressive competition between the island's commercial banks.
"If it happens, then we will see some plans pulled from the drawers," said Ammar.
Walters too expects that rates will continue to fall, given positive signs of improved earnings from tourism, mining, and signs of growth in communication, the financial sector and construction.
It is usual in a scenario of declining interest rates for investors to convert to US dollar investments. But that market is "very liquid" at the moment with added flows expected in September, said Crooks, and is yielding "extremely low" rates which have fallen recently to between 7 and 7.25 per cent, thereby curtailing demand.
"All of those who want foreign exchange to finance imports would already have it," Walters said.
