Fri | Aug 23, 2019

Scotia forecasts fall in interest rates, increase in market liquidity as economy improves

Published:Monday | July 22, 2019 | 12:19 AM
Debra Lopez Spence (left), vice-president, sales and service of Scotia Investments and Wealth, and Tameka Walker-Mowatt, senior financial analyst of Scotia Investments, chat with Eddie Cousins of Lydford Mining company at the Scotia Investments Client Connect and Invest breakfast series at the Marriott Courtyard in New Kingston last Thursday.
Debra Lopez Spence (left), vice-president, sales and service of Scotia Investments and Wealth, and Tameka Walker-Mowatt, senior financial analyst of Scotia Investments, chat with Eddie Cousins of Lydford Mining company at the Scotia Investments Client Connect and Invest breakfast series at the Marriott Courtyard in New Kingston last Thursday.

A leading investment brokerage is forecasting that interest rates will decline even further and market liquidity increase as Jamaica’s economic position continues to improve in the months ahead.

“We have record growth and low interest rate … . Everything for Jamaica is heading in the right direction,” senior financial analyst at Scotia Investments Tameka Walker-Mowatt told an intimate group of high-net worth clients at a breakfast meeting last Thursday at the Marriott Courtyard Hotel in New Kingston.

“Within the next year, we are going to see about $8 billion in liquidity coming into the market, and that means interest rates are going to go lower, and that means there will be opportunities for those in the equities market,” Walker-Mowatt advised clients.

This comes as the Statistical Institute of Jamaica (STATIN) reported last week that the Jamaican economy grew 1.7 per cent during the first quarter of this year. STATIN also reported that the country’s unemployment is at a record low of 7.8 per cent. Interest rates on loans and mortgages are now at single digits.

The Scotia analyst is expecting the buoyancy in the Jamaican economy to be carried by strong performances in the tourism, construction, and manufacturing sectors as visitor arrivals grow, more hotels are built, and the real estate market expands to meet growing demand for housing across the island. Expansion in the local manufacturing sector is also anticipated and unemployment is expected to dip even lower.

Continuing, she said that declining interest rates and stronger GDP (gross domestic product) growth with a moderate external position will make it attractive for persons and companies to refinance higher-interest debts. She also said that the high liquidity in the market would make it attractive for companies seeking capitalisation to launch initial public offers.

FAVOURABLE CONDITIONS

Walker-Mowatt said the low-interest rate environment will make investing in fixed-rate bonds and coupons issued by government and non-government entities more favourable for investors seeking higher returns. Already, she said that government bonds are being oversubscribed due to the moderate liquidity in the market and the limited availability of investable assets.

Unlike Barbados and Trinidad, whose economies are currently undergoing different levels of fiscal consolidation and restructuring, Walker-Mowatt said that Jamaica is expected to continue seeing strong GDP growth based on an improving fiscal platform.

The Scotia investment banker said that the balance sheets of local companies are likely to improve with increased earnings and profitability as a result of the country’s favourable fiscal platform.