The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading investment house has doubled the number of brokerage accounts it opens monthly, its president likening increased capital market interest to “a snowball rolling down a hill”.

Michael Anderson told Tribune Business that while the increase in account openings at Royal Fidelity Merchant Bank & Trust was more akin to “a trickle than a flood”, it nevertheless reflected a significant change in investor sentiment towards the capital markets.

He attributed this to the prevailing low interest rate environment and low bank deposit returns, warning Bahamian investors that gains from the latter investment option were effectively being wiped out by inflation.

“The low interest rate environment, and changes taking place in the capital markets as a result of the low interest rate environment, have got people more interested in opening brokerage accounts to take advantage of the equity and debt markets,” Mr Anderson told Tribune Business.

Opening such accounts with BISX’s broker/dealer members, such as RoyalFidelity and CFAL, allow the owners to trade in the buying and selling of securities.

Mr Anderson said that while RoyalFidelity had typically opened between five to 10 new brokerage accounts per month, it was now opening at least 10-15. “It’s probably doubled,” he added.

“It’s a trickle rather than a flood. It’s like a snowball rolling down a hill. It’s a noticeable change. You’ll start to see it manifest itself in changes in stock prices, and people’s ability to trade in and out of the market. It’s the start of something.”

The equities markets, as represented by BISX-listed stocks, has been on a steady upswing since 2012. Mr Anderson said the market was up 4.6 per cent year-to-date for 2014 on capital appreciation alone, following a 10 per cent rise in 2013.

“I said last year that I thought this year would be another 10 per cent year, but there’s some real issues that are going to push it,” he told Tribune Business. “The low interest rate environment and need for better returns is helping to refocus people’s attention on the capital markets, and there are opportunities on dividend yields.”

Mr Anderson said some 12 of BISX’s 20 listed equity stocks, or 60 per cent of the market, were paying dividend yields of 3 per cent per annum. Four stocks were generating dividend yields greater than 5 per cent, and another three-four more than 4 per cent.

“You’ve got at least six to eight stocks paying more than 4 per cent,” he added.

The RoyalFidelity president said the key question now facing many Bahamian investors was how long they could sustain the 1-2 per cent bank deposit returns they have endured for two years.

“It’s [interest rates] been coming down for five to six years, and nobody anticipated it getting down as low as it got, and spreads getting as low as they got,” he said. “The problem is people are thinking it’s going to change next year.”

Mr Anderson added that bank deposit returns were lower than current inflation rates, meaning investors were effectively experiencing negative returns.

“If you are sitting there as investors looking at bank deposits, and making 1-2 per cent, you will say you need to find alternative investment solutions,” he told Tribune Business. “Most people realise banks are not the solution.

“Unless you’re able to get assets into something that exceeds inflation, you’re going backwards. The banks are not the best place to keep long-term investments.”

Acknowledging there was more risk involved in investing in the capital markets, Mr Anderson said the challenge was still to convince Bahamian investors to abandon the traditional ‘safety and security’ psychology they associated with bank deposits.

“Investors are going to get beaten up in the banking market,” the RoyalFidelity president told Tribune Business. “In the long-term, they need to generate higher returns than inflation to yield value.

“That’s what the capital markets in this country offer. We don’t have enough issues in the market, and do not have enough investors, but we’ve made substantial progress.”