TRINIDAD GUARDIAN:
AFTER RECORDING a 55 per cent increase last year, stockbroker Subhas Ramkhelawan has predicted that the Composite Index of the local stock market will slow this year, signalling the end of the three-year bull market. Ramkhelawan is predicting that the Composite Index will increase by between 17 and 20 per cent this year, following its 25.6 per cent in 2002, 27.2 per cent in 2003 and 54.8 per cent last year. He predicted that local stocks will maintain "good momentum" in 2005, but he expects the Composite Index to run out of steam, ending the bull-run.
"We have run our projections which indicate that the Com-posite Index is going to be up by between 17 and 20 per cent," said Ramkhelawan in an interview on Monday. At the start of 2004, the stockbroker had predicted that the Composite would increase by between 12 and 15 per cent. Questioned about the fact that he was about 40 per cent off, Ramkhelawan said his 2004 predictions were based on forecasts of corporate earnings. It was not clear at that time what the price earnings multiple would have been. At the end of 2004, the weighted average multiple for the Composite Index was 21.6 per cent.
This means that last year there was a significant rise in the price earnings multiple on the local market. "Price earnings multiples have reached historic highs since the current period of growth started in T&T in 2004," said Ramkhelawan. "But the question in my mind is how much more room do we have for the price earnings ratio to increase this year," he said.
MONETARY CONDITION
Ramkhelawan argued that if the weighted average PE multiple goes beyond last year's level of 21.6, "the market will be in froth territory as far as valuations go." He pointed out that while the T&T market traded at a PE multiple of 21.6 last year, the Jamaica Stock Exchange Index traded at 19.5 and the U.S. Standard & Poors Index was at 18.2. "Our prediction is that at roughly 19 times earnings, we should see growth in the Composite Index of about 17 per cent. And if the multiples remain at 2004 levels, we should see the market advancing by 20 per cent." Ramkhelawan said monetary conditions last year favoured the appreciation in the real estate and equity markets.
He noted that the Central Bank engaged in monetary easing in 2004 with its reduction in the reserve requirement. The reserve has declined from 18 to 11 per cent since October 2002, and Central Bank Governor Ewart Williams has said that it will be reduced further to nine per cent this year.
BOND ISSUES
"We believe that the Central Bank will go to a nine per cent reserve requirement and will sterilise the liquidity generated through bond issues," Ramk-helawan said. Increases in U.S. interest rates "presents a challenge to the T&T authorities," said Ramkhelawan, because of the need to maintain a differential between U.S. and T&T interest rates.
If the differential becomes too small, it could have an impact on whether investors choose to save in TT or U.S. dollars, he said. Ramkhelawan's top pick FCIB-Trading at a high multiple currently but has some significant one-off gains to take from the sale of its Republic Bank stake to the CL Financial group.
It should also benefit from the upward movement in U.S. interest rates which, because of their large U.S. balances, will have a significant impact on First Caribbean's balance sheet. He also likes RBTT, Ansa Finance, CCN and Angostura on the local market.
Of the foreign stocks on the Composite Index, Ramkhelawan likes JMMB, DB&G and CCMB as well as FirstCaribbbean International Bank.
