Options for Investing in Lean Times

On May 24th, the Minister of Finance Peter Phillips, read the anticipated budget outlining some of the proposed revenue measures that were being employed in an attempt to reduce the county’s fiscal deficit and spur economic growth. In particular, theMinister presented a tax package to the nation which included measures such as: reductions in tax incentives and waivers, widening the tax base for both corporate income tax and consumption taxes and lowering of rates including personal income tax.

When taken as a whole, it is hard to deny that the national budget would be classified as an ‘austere’ one. Since the measures in general sees the government effectively increasing taxes and reducing their spending, it is expected that we will see a contraction in the economy. With virtually all sectors seeing impacts of increased electricity, fuel and call costs; not to mention the possibility of reduction in aggregate demand as consumers feel the pinch of increased prices of goods and services, one of the questions on everyone’s mind is, “Where can I invest my money?” Firstly, let me alleviate your fears right now and tell you that there is still money to be made during these times.

As a friend of mine likes to say “Even if Rome is burning to the ground, make sure you have money in the water business.” So let us ADVERT. …Making money work for you! take some time to look at some options I would recommend to make good use of your investing dollar.


Good stocks are prime

The easiest and most common way to invest in a country’s economy is by purchasing stocks in growing sectors. It should be pointed out that the largest portion of the proposed increase in taxation is being borne by the tourism sector, followed closely by the telecommunications and financial industries. However, companies with good management will make the necessary adjustments to capitalize in this new environment and so investors should seek to invest in cheap blue chip companies with low debt, steady growth, and strong earnings. In particular, the budget has favoured non-financial companies who have received a reduction in their corporate tax and junior market companies will still benefit from their tax-free position. Companies in these categories should thrive despite any contraction in the economy.


A Diversified Portfolio is key

I would also recommend a low-cost, tax-free, diversified portfolio as one of the keys to investment success in these lean times. With consumers feeling the brunt of increased taxes, investors who participate in a longterm tax free investment, such as an individual retirement scheme (IRS) and unit trusts are well equipped to make real returns that outpace inflation. Portfolios such as Barita’s IRS and Money Market Fund contain a very large number of individual blue-chip stocks and/or investment-grade corporate, local and global bonds which provide tax-free returns.


Foreign currency is a good investment

Though at this time some local investors have their eyes focused on the state of our local economy, many investors have been seeing the effects of the slowdown overseas, particularly in Europe and China. Global markets are likely to remain volatile in the short to medium term especially in the face of slowing economic growth and looming global recession. As such, I expect to see what most people do in times of uncertainty; ‘fly to safety.’ As it stands, the US dollar is the world’s safe haven, which will more than likely be appreciating against its pairs and so investors should look to also put some of their hard earned dollars in US denominated investments. Investments such as US Global Bonds and US stocks with strong balance sheets are sources of potential return through growing dividends and attractive bond yields.

In addition, one clear message the budget sends is that we are committed to repaying and reducing our debt; a confidence boosting message for the holders of GOJ global bonds. It also seems that there is a clear intention to find favour with the IMF and therefore paves the way for our securing another IMF agreement. This again should boost our global bond prices. There is just one possible hurdle that the GOJ must cross, and that is the raising of funds to pay out the Euro bond maturing in July of this year. This again could provide some opportunities for investors looking for a home for their funds.


Real Estate, a hedge against inflation

A final option that investors should explore is real estate. The government last year made some proactive steps to reduce the cost of transactions in the real estate sector, through a reduction in transfer cost of mortgages and stamp duties. This sector in particular is a good hedge against inflation and serves to provide good cash flow if these properties are rented. Investors can get such exposure though Real Estate Investment Trusts (REITS) and stocks with strong exposure to this sector such as Pan Jamaican Trust Ltd. In any environment, opportunities exist.

Please talk with your Barita Investor Advisor today on the best options for you.

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