The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian stock market’s current position is “the most promising it’s looked for three-four years”, a leading investment banker said yesterday, recovery having started in February 2012 after the long-standing oversupply of ‘Sell’ orders was eliminated.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that while the equities market’s recovery was “not broad-based”, and likely to be inconsistent, the tepid increases in the Bahamas International Securities Exchange’s (BISX) All-Share Index since February indicated a modest upward trend had begun.

He attributed the All-Share Index’s improvement to an increase in trading volumes and more investor money entering the Bahamian equities market, driven by the reduced returns available on alternative fixed-income investments and bank deposits.

“What we see happening is the market is slowly turning around,” Mr Anderson said. “People are recognising there are some value propositions in the market, and we are seeing some recovery in prices.

“If you look at our market today, and look at where we were, you’d find we are significantly behind in terms of recovery compared to the US market.

“We’re lagging quite far behind, which gives us greater upside potential. It’s [the equities market] the most promising it’s looked for three-four years. It’s about time.”

Larry Gibson, Colonial Pension Services (Bahamas) vice-president of pensions, told Tribune Business that stock prices and trading activity were being driven by the return of institutional monies and share buybacks by listed companies.

Taking a more cautious line than Mr Anderson, the Colonial executive said the Bahamian equities market’s long-standing liquidity problems had delayed its recovery, at least in comparison to global markets, which had started to rebound in 2010-2011.

And Mr Gibson also pointed out that the Bahamian market had a long road back to where it was prior to 2008.

He told Tribune Business that the BISX All-Share Index lost 17.2 per cent of its value that same year, followed by a further 8.6 per cent decline in 2009. The following years, 2010 and 2011, saw the All-Share Index fall 4 per cent and 8.97 per cent, respectively, and for the 2012 half-year it was down almost 4 per cent.

Still, both Mr Anderson and Mr Gibson agreed that the elimination of the ‘Sell’ order oversupply on the best performing BISX stocks was aiding the market’s recovery.

“On the good stocks we’re looking at, there’s virtually no shares left,” Mr Anderson told Tribune Business, noting that only ‘Buy’ orders were outstanding for the likes of Commonwealth Brewery and Arawak Port Development Company (APD).

“There’s very limited shares available in good companies that offer reasonable dividend yields,” he added. “The market has been picked clean of outstanding good stocks - the good yielding, high dividend paying stocks with good capital appreciation potential.”

BISX last week reported that its trading volumes for the 2012 half-year more than doubled to over 2.8 million shares, for a value of more than $12 million.

By comparison, trading volume for the six-month period ending June 30, 2011, was 1.248 million shares for a value of $6.945 million.

Trading volume for the three-month period April 1, 2012. to June 30, 2012, was 1.679 million shares for a value of $6.891 million. Trading volume for the same three-month period in 2011 was 605,721 shares for a value of $3.687 million.

The Bahamian equities market appeared to have “reached the end of clearing off inventory that’s been sitting around for years now”, Mr Anderson said.

As a result, with few investors willing to sell out of good equity investments, those wanting to buy in were having to offer ‘bids’ at a premium to current trading prices.

And, while many stocks and price/earnings (PE) ratios were trading at “a significant discount to fair market value”, the RoyalFidelity president said the strength of duration of stock market recovery were both uncertain.

“I don’t think it’s so much a steady recovery as we’re going to see some sort of growth take place over the next few years, and it’s likely to jump about and not necessarily be steady,” Mr Anderson said.

“Our market tends not to be volatile, but there’s not necessarily a steady upward trend.”

And he emphasised: “It’s not that there’s this kind of broad-based recovery taking place. It’s still fairly narrow. It will gather momentum, and as more people see it happening, more people will get involved. It’s difficult to say whether it will be consistent.”

Mr Gibson added that more institutional investor money was coming into the Bahamian equities market, many players having “sat on the sidelines for over a year” and running down stock holdings to “their lowest levels”.

Pointing out that any sustained stock market recovery had to be earnings driven, Mr Gibson said banks and financial services - the largest sector listed on BISX - were mostly all down on 2011 comparatives due to problems with non-performing loans.

“What’s going on is that they’re shaking out those old ‘Sell’ orders, but there’s still this huge problem will illiquidity, no doubt about that,” Mr Gibson told Tribune Business.

“We should have been recovering here in 2010-2011, but that never happened because of the oversupply of ‘Sell’ orders.

“But it just takes one or two trades to make it look better. What’s going to be interesting is the overall economy. It’s not getting any worse, and in aggregate companies appear to be doing better, although that’s not filtered down to the day-to-day man.”