Investors should stay the course

Published: Wednesday October 22, 2008

For most average Trinis stock market dealings are not a main topic of conversation, but economists are now saying it is time for Trinidadians to realise that stock market fluctuations affect even the most "average Joe."

All over the world the global financial crisis has been rocking stock markets shares. The number of active stocks that were traded fell to major lows this week all across the globe from as far as Japan, the United States, France and Germany, all the way back to the Trinidad and Tobago Stock Exchange.

An average of ten securities were traded per day last week. On some days traders only choose to bid on as little as six of the more than 30 securities listed on the local market.

The turbulence of share prices and investment trading which has come as a result of the global economic slow down, the Wall Street financial crisis and the array of natural disasters which took place this year and are affecting commodity prices every where have seen traders running scared, afraid to put their money out there to be devoured by market instability.

With traders having less disposable income as a result of both the recession and trade market slowdowns, local economists have explained on several occasions that tourist arrivals will shrink, foreign direct investment will be reduced and foreign capital loans will be harder for businesses in developing countries to secure.

Local economists have explained that Americans, Europeans and Asians will have less money for consumption and therefore the oil and gas demand will fall. The price of energy commodities will fall and Trinidad and Tobago's economy which is energy based will suffer.

Last week, saw oil prices dropping below US`$70.

This drop has local economists and business chambers alike debating whether or not this country will have to adjust it's budget which is based on an ambitious oil price of US $70. While Minister in the Ministry of Finance, Mariano Browne told the Express on October 10 that there is no need to adjust the budget, the instability of the financial world has made it hard for even the best financial analysts to accurately predict the outcome of commodity prices this year.

The big question

Many are now wondering however, if the budget has to be cut, what will go?

Will the promises of post graduate degrees for all our first class students be withdrawn, or will it be the ferry passes for the elderly and/or the several highways that have been promised.

While the stock markets stand in limbo, so do energy prices, so does the T&T economy and so does the fulfillment of the 2008/2009 budget promises to the nation.

And the retirees?

Employees who are paid bonuses in shares also will be affected by the slow down in trading. Global financial experts have said employees set to retire soon could be the ones losing the most from these financial conditions if the share prices at their company plummet while they are packing up shop and taking cash on their shares to buy an annuity.

An annuity is a contract which will provide someone with a steady income stream over the years (salary), in return for one initial lump sum payment.

Global predictions showcased by the BBC show that those buying an annuity now will receive an annual sum that is at least 15 per cent less than they would have gotten only a month or two ago.

Positive outlook:

However, Ramcharan Kalicharan, Chief Operating Officer at regional financial company, Caribbean Money Market Brokers (CMMB) told the Business Express he did not see the short-term stock market slow down affecting local securities holders in a big way as a slow down in buying and selling also means that locals are not getting scared and selling out their shares, "which is a good thing."

"People are not exiting the stock market which is a good sign. If we see trading volumes increase significantly we can take that to be an indicator of panic and panic selling, and that's when we need to be worried."

Don't panic sell:

Economist Jwala Rambaran also commented on the effect of panic selling within the local stock market during the First Citizens Bank launch of their El Tucuche Fixed Income Fund at the Hyatt Regency Hotel on October 9.

He said, "In this dark and uncertain environment investors are perhaps tempted to sell everything and flee into cash, waiting for better days."

He said that while he understands the logic behind that feeling he was urging investors not to let "indiscriminate and emotional selling over power all rational, analytical thinking."

Rambaran urged investors to "stay the course" as it is never smart to exit a market in a panic as both research and past economic outcomes have shown the folly and ill effects of attempting to do so.


Source: Trinidad Express Newspapers
http://www.trinidadexpress.com/index.pl/article_business_mag?id=161390887