How the 2015 T&T General Election May Impact Your Investment

27 July 2015


T&T General Election 2015

 

 

 

 

 

 

 

 

It’s that time again. The general election has been set for 7 September, 2015 and political advertisements are slowly creeping their way into our newspapers, televisions, and favourite websites. It’s no secret that politics directly affects the economy. For example, it affects the labour market (by creating jobs, increasing wages and productivity etc), the housing market and consumer spending, just to name a few.

But what does this mean for local investors?

Since the two major political parties hold similar social democratic ideologies, the election result should not drastically affect the financial markets in the short term.

Bonds

Investors in government bonds and treasury bills value certainty, and are attracted to the low risk inherent in these investments. Recently, global issues affecting our oil and natural gas based economy have negatively affected our bond prices. The fact is our small island economy is a price taker in the global energy market since we cannot directly influence oil and gas prices.

When a government is elected in September, there will be uncertainty about government expenditure, fiscal deficits, interest rates and inflation. Fortunately, neither of the leading parties offers policies that are fiscally irresponsible, and drastic inflation or deflation is not a high probability outcome.

Bond prices are more dependent on Central Bank operations than on the government per se. If the Central Bank continues to tighten its monetary policy – or if investors believe that it will continue to do so – treasury yields will increase. If the opposite happens, then low yields will make riskier investments, such as stocks and corporate bonds, more attractive.

Equities

In the short term there is unlikely to be significant change in the local equity market due to the election.

However, during the term of the elected government, businesses and financial institutions listed on the Trinidad and Tobago Stock Exchange (TTSE) will be subject to many aspects of government policy and must comply with the law.

Economic policy that favours banking, conglomerates, real estate, manufacturing or trading is likely to positively impact the Trinidad and Tobago Composite Index (TTCI) and to make dividend seekers and wealth creators happy.

For instance, take the banking sector. Suppose the elected government allows banks greater freedom – above and beyond what they currently enjoy – to offer consumers new types of financial services and the freedom to form financial conglomerates. Banks and brokers would then increase business by marketing a wider range of financial products including mutual funds, stocks and bonds, insurance, and automobile loans. The expected result would be an upsurge of mergers among financial institutions and a positive impact on the TTCI.

Foreign Exchange (FX)

The FX market, akin to the local stock market, is dependent on central bank operations and government policies in the medium to long term. The TTD is a floating currency that remains subject to some intervention from the Central Bank to ensure that it remains relatively constant over time and to ensure that internal interest rates are stable. Much of the TTD’s depreciation in past months has been against a resurgent US dollar. As the reserve currency of the world, the USD is the most demanded currency in Trinidad, with a supply that in no way meets the demand. The majority of our USD earnings are from oil and natural gas. So a solution to the shortage problem might be to provide non-energy businesses with an incentive to engage in foreign direct investment (FDI) or to limit Central Bank intervention in the FX market.

 

The trend is your friend until it bends. Let Firstline navigate the markets for you and put your surplus cash to work either as your asset manager or investment advisor. Firstline Securities Limited offers comprehensive coverage of local and international markets with a bias for the energy sector. See our picks for today, the highlighted bonds at the following link: http://firstlinesecurities.com/wp-content/themes/fsl/uploads/2015/07/FSL-MARKET-UPDATE-150727.new_.pdf

Please contact us for more details at info@nullfirstlinesecurities.com or at 868.628.1175. We look forward to hearing from you.

 

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