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Deepening Regional Capital Markets Investment Options Revisited

Deepening Regional Capital Markets Investment Options Revisited. Presented by Marlene Street Forrest – GM JSE November 2010. Sources of Capital. Debt and Equity Offerings required to: Make market competitive and efficient Serve as Risk Management Tools Capitalize on Arbitrage Options

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Deepening Regional Capital Markets Investment Options Revisited

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  1. DeepeningRegional Capital MarketsInvestment Options Revisited Presented by Marlene Street Forrest – GM JSE November 2010 “Providing a Fair, Efficient and Transparent Stock Market”

  2. Sources of Capital • Debt and Equity Offerings required to: • Make market competitive and efficient • Serve as Risk Management Tools • Capitalize on Arbitrage Options • Energise the Investment Market • Cautions • Over creativity has potential for destabilisation • e.g. Recent sub-prime market turmoil “Providing a Fair, Efficient and Transparent Stock Market”

  3. The Jamaican Experience • >1% yearly GDP growth over last 15 years • Partially due to lack of investment options • High interest rates Govt. Securities crowded out market (97% of investment) • Recent Debt Exchange (JDX) • Cut rates and reduced # of Govt. Securities • Investors looking elsewhere “Providing a Fair, Efficient and Transparent Stock Market”

  4. Current CaribbeanInvestment Products • Equities and Debt instruments • On Exchanges • Companies list minimum capital requirement • Limited floats = limited participation • Investors tend to buy and hold = limited trading • Few start-ups • Very limited debt listings “Providing a Fair, Efficient and Transparent Stock Market”

  5. Investor Participation • In Jamaica: • 3% of population invest in equities • <1% are between 18 and 35 years old • Similar demographics across region • Technology may attract younger investors • Internet-Based Direct Trading • 32% more US investors 2 years after introduction • Seen as improving transparency and availability “Providing a Fair, Efficient and Transparent Stock Market”

  6. Investment Possibilities • Regional Exchanges and Investment Houses have infrastructure and expertise to leverage • Futures & Options (Derivatives) • Appeal to hedgers and speculators • Derivatives market boosted Indian National Stock Exchange to 3rd most active within one year • Training of market participants is important “Providing a Fair, Efficient and Transparent Stock Market”

  7. Investment Possibilities(Part 2) • Exchange Traded Funds • Derived from existing equities and debt securities • E.g. American Depository Receipt • Caused significant growth in Latin American markets • Pooled Funds • Potentially attractive if properly regulated • Likely increased demand for existing securities “Providing a Fair, Efficient and Transparent Stock Market”

  8. Investment Opportunities(Part 3) • Real Estate Markets • Attractive but complex and require large outlays • There are products that can overcome these challenges • Real Estate Investment Trust (REIT) • Unitised investment vehicles to pool funds • Reduce investor outlay, simplifies process • Kingston Properties Ltd. (REIT) listed on JSE “Providing a Fair, Efficient and Transparent Stock Market”

  9. Fixed Income Trading • Government Bonds to Corporate Bonds • Jamaica: J$1,500b vs. $430b • Trinidad & Tobago: 1:4 • Eastern Caribbean: 5:1 • Investors have historic short-term outlook • GoJ bonds to be electronically traded • More transparency, better price discovery • Greater liquidity, potentially lower cost to investors “Providing a Fair, Efficient and Transparent Stock Market”

  10. Venture Capital • In USA: Over U$105b raised for VC • Little formal VC in Caribbean countries • Need for innovation • Specialist brokerage outfits • Tax holidays for companies and incentives for investors • Jamaican Junior Market benefitted from tax remission – 2,000 new investors in 2 years “Providing a Fair, Efficient and Transparent Stock Market”

  11. In Summary... • Many attractive investment products ripe for Regional development • Venture Capital , Pooled and Mutual Funds • Trading of Govt and Corporate Debt • REITs; derivatives, depositary receipts, etc. • Trading methods: Direct/internet-based • Needed for stimulating investor interest • and revitalising economies “Providing a Fair, Efficient and Transparent Stock Market”

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