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Royal Fidelity: Capital market shifts

One investment management and financial services company is reporting some major shifts within the capital market here.

Royal Fidelity said over the past year many people have had no other option but to liquidate their long-term investments due to, among other things, an increase in taxes. And assistant vice-president Jillian Nunes does not expect things to turn around in any hurry.

“In the last year or so, many people have witnessed a change in their lifestyle, brought about by the combination of a pronounced economic slowdown, increase in taxes and too little disposable income,” she said.

“Unfortunately, some of these people have been forced to liquidate their long-term investments to meet short-term obligations. On any given day there are plenty of sellers in the market, but few buyers. This illiquidity in the local market has driven more serious investors to look to neighbouring islands like Trinidad for profitable investment opportunities,” Nunes told Barbados TODAY.

Acknowledging that some companies had been delisted from the local Stock Exchange over the past two years due to low trading activities, Nunes added that Royal Fidelity had witnessed “very little” capital market activity in other securities.

As for the outlook, she stated that similar to previous years Royal Fidelity was expecting to see a shift from investments that were equity based to more conservative, fixed income type investments.

Nunes said given the problems Barbados recently had with its local debt, she believed there would be continuous movements to securities with shorter maturities.

In addition, Nunes said companies were moving away from defined benefit pension plans for their employees to defined contribution pension plans, where employees are responsible for some portion of the contributions made to the plan. This transfer of pension responsibility from employer to employee, said Nunes, was happening because the investment returns realized by the defined benefit plans have not been high enough to satisfy the future obligations of the pensioners.

“This deficit has put a strain on company balance sheets that employers are now addressing by switching to defined contribution schemes,” she added.

This point was supported by managing director of Samdor Services Gregory Hinkson, during the recent Royal Fidelity pension breakfast session Challenges Facing The Pension Industry.

In addition to the changes, Nunes said taxes were “increasingly a big issue”, adding that since the removal of tax incentives for investments into mutual funds some years ago there has been a shift towards Registered Retirement Saving Plans (RRSP).

“Unfortunately, many people focus more upon the tax incentive itself rather than the objective of the investing, whether that’s retirement or education . . . all these factors hurt the development of a healthy capital market in Barbados and hinder efforts to promote long-term investment within the country. Unfortunately, I think investor confidence stands at an all-time low,” added Nunes.

She said while she welcomed the Government’s austerity measures it would have been better had they come sooner.

“I expect that things might have to get worse before they get better,” she added, saying that any recovery felt in Barbados “will most certainly be slow and painful”.

Chief executive officer of the Barbados Stock Exchange, Marlon Yarde, agreed that the level of activities on the local stock market was not at the level he would like it to be.

He said the present economic environment also resulted in more people wanting to sell their shares but the demand was not there.

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