May 2006 Financial News

Barbados - Inflation, oil prices affecting share values

May 22, 2006

RISING INFLATION, skyrocketing oil prices, some foreign reserves concerns, and a shift from securities to fixed incomes are all acting to depress some share prices in Barbados.

"Simply put, the economics have changed," said investment analyst Chris Callender as he tried to respond to recent public concerns about share values of some highly profitable listed companies.

The Central Bank imposed four increases in the minimum interest rate on deposits over the past 12 months in an effort to encourage saving and cut spending on consumer goods.

Callender said the move affected the securities market by making the cost of lending more expensive, and as fixed incomes became more attractive, some investors began shifting their money to more secure fixed income instruments.

"Right now everybody is kind of cautious about the direction of many of the companies. The cost of doing business here is going up; interest rates and the commodity prices are shooting up and that is going to hurt. [Companies] would like to keep the same margins, but you know that realistically you can't, and we still have not seen what will happen with Cricket World Cup," the investment analyst assessed.

Callender added: "Interest rates on fixed incomes, which are less risky than stocks, have gone up and so it would make more sense to move some of your money out of stocks and into fixed incomes.

"You had interest rates on (savings) move from two per cent to six per cent and above . . . I know this has been a major contributor to share prices since last year."

Comparing performances of the three major Caribbean exchanges, he said at May 12, indices in Trinidad were down 12.85 per cent, Jamaica was down 16.86 per cent, and Barbados' down 0.97 per cent.

Barbados, he said, had not done badly mainly because of the conservative approach of investors. What was happening now, he added, was cyclical and driven by economic uncertainty. (GE)

Geralyn Edward
The Nation Newspaper
Monday, May 22, 2006
http://www.nationnews.com/story/303743001219812.php