Dennise Williams, Staff ReporterINVESTOR CONFIDENCE in the local economy has remained buoyant despite the destruction brought on by Hurricane Ivan.
This is evidenced by the pouring of approximately $5.9 billion into the latest investment debenture, Series Am, paying 16.25 per cent over 18 months. It appears that the Ministry of Finance and Planning hit the right chord with investors by offering a short-term debenture paying interest on a quarterly basis. Series Am closed on September 23 and matures on March 17, 2006.
Sonia Owen, investment manager at Barita Investments, tells Wednesday Business, "The debenture did well. Right now, investors see that it was a better deal than the interest rates paid on one-year repurchase agreement (repos) offered by the Bank of Jamaica (BoJ). Those repos pay 16 per cent and you get the interest at the end of the 365 days instead of every three months. That was a big plus for Series Am."
INVESTOR OUTLOOK
Clay Moodie, manager of Dehring, Bunting and Golding's unit trust division, explained that, "Investor confidence is still high. The fact that Series Am took in over $5 billion after Hurricane Ivan is an excellent measure of investor's outlook on the economy. Prior to the hurricane, Government strides on the fiscal side have been impressive and they have reaped the benefit of that," he said.
And it appears that Government will continue to pursue a policy of bringing down interest rates. However, while investors who were used to high interest rates are being weaned of that habit, the Government has heard the call for shorter term instruments to complement the lowered interest rates. Looking at the last three debentures shows that pattern. Series Ah closed on June 29 and paid 17 per cent over 21 months; Series Aj, which closed on July 26, paid 16.875 per cent over 28 months and series Ak closed on August 25 and paid 16.75 per over 21 months. Yet, the real cost of the hurricane looms so investors want to stay short. Investors are in a wait and see mode.
UNCERTAINTY
Said Ms. Owen, "People are simply going through the motions. There is a lot of liquidity on the U.S. and Jamaican dollar side. Investors want to stay
liquid and so they are just putting money on 30, 60 and 90 days because they don't know what the real cost of Hurricane Ivan will be."
Investors who may want to lock away their money for the long-term have to watch international energy prices. "Oil prices have curtailed investor's appetite for long-term investments. They are watching the effects of oil prices on inflation before they lock into longer term instruments," said Mr. Moodie.
But the million-dollar question is, will interest rates continue to be kept down? Ms. Owen said, "I am optimistic and so I don't believe interest rates will be hiked up. In fact, if it weren't for Hurricane Ivan, I think interest rates would have gone down further."
Mr. Moodie is of a slightly different opinion, "The trend shows that interest rates are coming down but I am not sure how much lower rates can go."
