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Tuesday, December 28, 2010

stock market revival for 2011 Analyst forecasts 6-7 percent

stock market revival for 2011 Analyst forecasts 6-7 percent : Listed Bahamian securities could on average enjoy price appreciation of between 6-7 per cent in 2011, a leading capital markets analyst has told Tribune Business, with developments such as the likely construction start for the $2.6 billion Baha Mar project set to revive earnings and investor sentiment after two down years.

While acknowledging that 2011 would not be " a stellar year" for the Bahamian capital markets, certainly not in comparison to the 20 per cent gains enjoyed in 2007, Kenwood Kerr, Providence Advisors' chief executive, said factors were in play to encourage an equity market revival.

Among these were prospective new initial public offerings (IPOs), such as the $60-$65 million Burns House/Commonwealth Brewery flotation; the initial 9 per cent government-owned tranche in the Bahamas Telecommunications Company (BTC) valued at roughly $37 million; and the Arawak Cay Port.

Explaining that these offerings would give Bahamian investors - both institutional and retail - greater depth, diversification and choice when they came to market, Mr Kerr told Tribune Business: "I'm an eternal optimist. It's not going to be a stellar year of performance by historical standards, at least not like 2007, when you have 20 per cent additional gains, but there's a lot of things going on locally that will restore and underpin investor sentiment."

Larry Gibson, vice-president of pensions for Colonial Group (Bahamas), agreed with Mr Kerr that investor sentiment was critical to Bahamian stock market recovery.

"What is lacking is confidence - the almost total absence of confidence," Mr Gibson told Tribune Business. "Even people with money are not willing to do things, and it's not going to happen unless they're confident. The professional money will start to look around once they become comfortable.

"The big risk out there is, if you look at credit to businesses, it's terrible." On mortgages, while loan values compared to appraised values were still pretty good, the high level of defaults in this area still did "not bode well".

Pointing out that Bahamian investors largely behaved as if they expected stock prices to go up all the time, meaning they reacted even more negatively in a downturn, Mr Gibson said: "I think it's going to be sluggish again next year.

"Our economy lags, and may not have seen the bottom. We're in a state of resuscitation, and it's not getting any better per se. The deterioration has stopped, but the recovery has not really kicked in yet."

Earnings

Key is progress on the $2.6 billion Baha Mar project, which is expected to eventually - through Bahamian contractors and workers hired to work on the $400 million construction package set aside for locals - produce a 'trickle down' effect that may also boost earnings for listed Bahamian public companies.

In addition, Mr Kerr said Baha Mar and other development projects could also result in the "level of discretionary and disposable income that allows people to invest increasing, both at the retail and institutional level".

The latest Central Bank of the Bahamas data showed that collective equity market valuations on the Bahamas International Securities Exchange (BISX) were down by 5.28 per cent for the year to November 30, 2010, a trend that contrasted with the upward movement for most global stock market indices, apart from France's CAC 40 and Japan's Nikkei 225.

While BISX was down on a "net net basis" by around 1.5 per cent for 2010, Mr Kerr said investors "could expect" average stock price appreciation of around 6-7 per cent for 2011, if all factors likely to impact the Bahamian economy came through in a positive manner.

"We need a sustainable recovery to cause people to think about being in the market long-term. We've had two bad years, and I believe this coming year will be much better, and the year after that better again," Mr Kerr said.

Acknowledging that the Bahamian economy was hugely dependent on the US for its well-being, and that our northern neighbour was still "not out of the woods", Mr Kerr took encouragement from the fact tourist numbers had passed the five million mark in 2010.

"That's a positive sign, meaning the destination is still attractive. If we continue at those levels, we should be OK," Mr Kerr told Tribune Business.

Stating that his four stock picks for 2011 were FINCO, Commonwealth Bank, Colina Holdings (Bahamas) and AML Foods, he acknowledged the need to get more Bahamians participating in the equities market as investors.

"Institutional monies play a significant role, and more people entering the market is important," Mr Kerr said. "We need broad-based retail participation. If it's just for companies and institutions, that signifies a lack of knowledge or understanding of the process, or that people just don't have the monies to invest in equities."

Pointing to the likely increase in capital market activity in the New Year, Mr Kerr added: "Market depth and diversification is very important. People have options. BTC would be more of a pure telecoms play, as opposed to Cable Bahamas, Heineken is a beverage, and the Arawak Cay port more of an infrastructure opportunity, so we're bringing real depth and diversification to the market.

"I think we're going to have a real degree of institutional involvement, create liquidity, have long-term capital, and real demand for those companies." Yet, he acknowledged, their prospects all depended on economic recovery and consumer sentiment. For the latest updates PRESS CTR + D or visit Stock Market news Today

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