Vantage Point with KEITH COLLISTER

This week, the need to present to the board and management of a local listed company on Jamaica's current economic outlook afforded me a further opportunity to assess the local economic outlook, a process which I began in last week's Vantage Point column.

In addition, it is important to factor in the implications of Tuesday's severe three-four per cent correction in United Sates stock markets, sparked off by a nine per cent correction in China's Shanghai Stock Exchange.

It is also worthy of note, that on Wednesday, our main index fell by over 1,600 points or 1.71 per cent on heavy volume, which weakness was confirmed by the All Jamaica index, which also fell by over 1,500 points, or 1.55 per cent.

I am not saying that international stock market weakness caused our local market weakness, as Monday was also a weak day for our local Jamaica Stock Exchange.

Unlike many emerging markets, if one excludes our Caribbean brethren (particularly Trinidadians), foreign investment in the Jamaican stock market is very limited so that its performance is largely determined by the mood of local investors.

This mood is currently not very positive, and a review of the international situation provides additional food for thought as to whether the international economic environment is changing, and how this will impact Jamaica.

It is also important to note that in my columns, I have not distinguished sufficiently between 'short-term' actionable trading advice, and general long-term investment, reflecting the fact that I like to look at both trading and investment opportunities.

Long-term'investment' view

General comments to buy certain stocks for one's portfolio, or a detailed analysis of the company are normally given with a long-term 'investment' view, whereas sometimes I have commented on stock prices specifically as cheap, more from a trading perspective.

While I don't believe, in our market at least - you can truly say where one begins and the other ends - I will try to maintain this as a convention in writing my thoughts for this column.

A good example of this is a couple of weeks ago, I strongly recommended National Commercial Bank Jamaica (NCBJ). This is not in fact a new recommendation of mine, as I have been recommending it for a long time (except when it went to very high levels in late 2004).

I like it more at its current lower price than the price when it released its results, but it is important to note that this is a long-term recommendation for a stock that I regard as a core portfolio holding.

Although the news out of Trinidad has depressed the stock this week, none of it is actually new to informed investors in Jamaica (rumours of varying degrees of accuracy have been out there for some time), and up to this point, I have no evidence that this will have any impact on NCBJ, which is a separate quoted company with minority shareholders hopefully well represented by their distinguished board of directors.

However, the demand for the stock is likely to be depressed, in Trinidad at least. so, despite the fact that I expect NCBJ's next quarter will also be good, the price is unlikely to take off in the short term in what is any case a flat to mildly declining market.

Further to the issue of the state of the local stock market, we started to look in last week's column if anything has changed in the economic outlook.

As previously mentioned in this column, investors appear to have taken a fairly cautious approach to the market so far this year. Moreover, the current economic environment is still far from exhibiting 'take-off', while in my view, the impact of Cricket World Cup will not be tremendously positive for Jamaican economic growth in the second quarter.

The likelihood is for a substantially higher-than-expected budget deficit of around four per cent of GDP, just as an international financing environment suddenly appears less forgiving.

Excess internationalliquidity

In that regard, Digicel's $1.4 billion high yield bond deal was exceptionally well timed for them, closing literally just before the international market correction.

There are certainly a number of straws in the wind that international liquidity may become less plentiful in the near future. One of the signs of this excess international liquidity has been the explosion in extremely large private equity deals.

In this regard, apart from the fact that Digicel's bond deal in many ways resembled a private equity transaction, using cheap debt to purchase equity, it is interesting to note that GraceKennedy has just acquired WT Foods of the United Kingdom, a leading ethnic and specialty foods supplier for ?23 million from Bridgepoint Capital Ltd., a European private equity firm.

It has long been my view that GraceKennedy was under pressure to adopt a less cautious approach, and do something meaningful to its bottom line. Without the benefit of any details, at first glance, this appears to be an acquisition that should be strong strategically, and I continue to recommend GraceKennedy shares as an excellent recovery play.

From the perspective of the likely outlook for growth this year however, I am now inclined to see the Planning Institute of Jamaica's growth projection of 3.3 per cent this year as reasonably accurate, as I don't currently expect the economy to accelerate markedly in the second half of the year.

Better expected growth was of course one of the factors governing my view of a better second-half performance for the stock market. While I still expect that performance, I expect it may be concentrated in the last quarter, after an October election.

keithcollister@cwjamaica.com