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From inside the markets

Published:Sunday | January 10, 2010 | 12:00 AM

Vivian Bedassie, Guest Writer

The continued uncertainty surrounding the details of the International Monetary Fund (IMF) agreement may have contributed to the current apathy that dominated equity trading last week. Trading on the stock market was characterised by very low trading volumes and weak daily advance/decline ratios.

Next week's promised debate on the details of the IMF Letter of Intent is expected to provide the market with more pertinent information that could affect it positively.

Notwithstanding, the index declined a marginal 0.49 per cent or 404.68 points to close at 82,917 points.

Thirty stocks traded a total volume of 6,074,248 units valued at $55.78 million with a weekly advance/decline ratio of 16:3.

Five stocks accounted for over 61 per cent of total trading volumes of which Cable & Wireless Jamaica traded 1.41 million shares or 23.246 per cent, followed by Scotia Group Jamaica Limited, 788,000 units or 12.99 per cent, and Caribbean Cement with 642,000 units or 10.57 per cent.

Main advancers were Scotia DBG, which gained $2.39 or 14.38 per cent to close at $19.01, followed by Lascelles, which gained $30 or 12 per cent to close at $280.

Other notable advancers were Seprod, which gained 50 cents to close at $18.50, and Scotia Group advancing by 12 cents to close at $19.69.

Some of the biggest losers were Capital & Credit Variable Preference Share, which fell 30 cents or 19.35 per cent to $1.25; Kingston Wharves, which declined 16.88 per cent or 52 cents to $2.56; and Pan Caribbean, which declined 14.2 per cent or $2.57 to $15.53.

Local Bond Market

The Ministry of Finance has not yet released its schedule of Issue of Government of Jamaica Securities for January 2010. This is expected next week and is eagerly awaited by investors, some of whom have indicated as their preferred choice, the 15-24 month tenors.

Global Bond Market

There was increased activity in the Jamaican global bond market with the 2017s and 2015s being the volume leaders.

The uptick in activity appeared to stem from the announcement that the Letter of Intent would be sent to the IMF in short order to complete the country's borrowing arrangements.

The GOJ nine per cent 2015s had moderate activity and traded in a range of $94.00 to $95.

The GOJ 10.625 per cent 2017s traded heavily between $94.50 and $94.75 and closed with offers at $94.50.

The GOJ eight per cent 2019s traded low volumes at $82 at mid-week but closed with bids above at $82.25.

There were no trades on the GOJ 11.625 per cent 2022s. Indicative offer was $106.125 while indicative bid was $102.15.

There were no trades on the GOJ 8 per cent 2025s. Indicative offer was $84 while the bid was $80.

The Air Ja 9.375 per cent 2015 did not trade, however, the indicative bids were at $91.50.

The GOJ eight per cent 2039 had low to moderate demand at $70 with no offers.

There was no activity on the GOJ euro-denominated bonds. Euro 2012 and 2014 both closed with indicative offers of $93 and $94, respectively.

Regional Global Bonds

The Petrotrin 2019s traded at $113.25 (a yield of 7.76 per cent) during the week, with moderate demand. There were no trades on the 2022s, however, the indicative offer price was about $93.75 (7.27 per cent).

Foreign Exchange Market

Brokers reported a relatively quiet market for the US dollar this week. There was reduced demand and no BOJ intervention.

The weighted average selling rate for the USD was expected to close between J$89.60 to J$89.65.

Demand for the Canadian dollar was stronger, with trades as high as $86.80.

The Euro, though, has been trading flat at $130.

Fiscal Deficit Still Climbing

The fiscal deficit widened sharply in November as revenues and grants continued to underperform initial projections. For the eight months to November 2009, central government operations ran a deficit of $87.79 billion, up from $78.9 billion in the year to October, which was $14.93 billion more than planned.

Against the background of the downturn in the domestic demand, which translated into declines in inflows from production and consumption and international trade, revenues and grants at $177.34 billion were 11.1 per cent ($22.24 billion) below budget.

Receipts from taxes on income and profits have also come in below projections, reflecting the downturn in consumer spending and corporate profitability.

However, inflows from PAYE have held firm and are likely to see some improvement in the final quarter of the financial year given the new income tax measures implemented on January 1, 2010. With the worsening revenue situation, the Government has been curtailing expenditure, with total expenditure at $265.14 billion trailing budget by $7.3 billion.

On January 1, a new tax package aimed at raising $21.8 billion per annum came into effect.

BOJ's Fiscal Intervention

With the deteriorating revenue situation and low take-up of GOJ instruments on offer in recent months, the Bank of Jamaica (BOJ) has had to step in to provide funding in its role as banker to the Government.

In a release, the Bank of Jamaica noted that Under Section 37 of the Bank of Jamaica Act it "is empowered to make temporary advances to the Government as well as acquire on a primary issue, securities issued or otherwise guaranteed by the government".

As such, in the period November to December 2009, the central bank advanced $5.1 billion to Government - $2.5 billion of which was repaid - and purchased GOJ securities totalling $18 billion. The bank noted that it advanced funds to the Government in the context of increased uncertainty and weakened confidence in the financial markets, which reduced investor appetite for GOJ securities. Investors had instead been opting to hold funds in short-term and overnight deposits with the central bank.

Written for Sunday Business by Vivian Bedassie, executive wealth advisor at NCB Capital Markets Limited.