Impactful investing during and after the pandemic.

What you need to understand about financial markets is that they tend to be forward looking. We’ve seen stock prices rise with the implementation of economic stimulus. Investors are looking to 2021 and beyond. Governments are providing the spark to get the economies going. We’ve already started seeing some markets, such as housing, begin to recover. The markets are discounting mechanisms, meaning, they are behaving on what they expect the future to behold. And so I’m not sure there is a disconnect. I am in agreement as well, that the economies and earnings are likely to improve in 2021, so we’re seeing that reflected in prices today. 

I don’t know if anyone remembers that four years ago, the prognosticators at the time said that if Trump got elected, the world was going to come to an end. In fact the night that president Trump was elected, US futures markets were down 5% and by the morning, they were back to flat. Low and behold, here we are today.

To me it’s like a soap opera. It’s great if you’re in the news business, because there is a lot of stuff to talk about, but ultimately it comes down to “Is anything, with respect to the election, going to impact the fundamentals of American or global companies?” I think right now, the answer is no. You can agree or disagree with the policies of each party, but that’s not a question for markets. That’s more about your personal preference.

Ultimately, the policies in place are pretty consistent across both sides of the isle, in the sense that both parties understand that the economy is strained and they are both trying to do their best to get us back on track. As an investor, I say there is nothing in the works on either side that’s going to fundamentally alter my view of the corporate earnings trajectory.

On the local market we do have a couple of interesting plays available. We have close ended mutual funds, that have large USD components to them. So you’ll actually be investing in TTD but getting USD exposure. So if there is a depreciation, then you would see that the value of your investment in TTD would increase. That’s also true of a number of open ended mutual funds available on the market. We also have TTNGL that trades on the local market, which is a completely USD company. All their cash flows are in USD so you’d expect that there earnings when reported in TTD or their dividend payout in TTD would increase if there is a depreciation in TTD VS US. So those are just a couple of ways that you can seek to hedge against the potential for depreciation in TTD going forward. 

The interventionist policy behaviour that we’ve seen over the last 10 or 15 years, this is just an extension of that behavior. What they want us to do is to push out along the risk spectrum and take on more and more risk. So basically they are doing that by taking away our returns from risk free assets, so to find returns we are having to push out into corporate bonds. From corporate bonds into high yield bonds. Bond yields are down so we’re pushing out into equities. Equities into riskier equities. So this has been something that has been going on for a long time. And for the central bank to say that they are going to keep interest rates down? I don’t think anyone in the market who does this for a living expected interest rates to rise anytime soon. Ultimately this is more of the same and what it does is raise the floor under market prices. So now you have this higher equilibrium level for market prices but ultimately you do need the fundamentals to carry you higher so good news is that I do think that earnings will be the next important fundamental support for the market going into the end of this year and early next year.  

Are there certain pockets in technology that look expensive or elevated? The answer to that is yes. Is it a bubble? I’m not sure that we have a broad based technology bubble. There is no indication of that. You know, just think back to the last technology bubble where you had the whole sector, not just one or two companies, trading at 50 – 70 times, not earnings, but sales. And that was pretty common and a lot of companies did not have any earning back then in the dot com bubble so it really was a classic investment mania. Today you are truly seeing a huge demand for companies who can put up some sort of earnings growth and or top line growth in a world where growth is scarce. In fact when you look at the supply of companies who are able to grow revenues for example of excess of 10% per year that has been a shrinking number of companies through time. So growth scarcity at the company level has been increasing and that’s why the demand for these growth companies has been so great. Again…are there pockets of excess? Sure you can find them but I don’t think that we’re at the stage of a broad-based bubble now. I think some companies are generating absolutely fantastic  earnings but as an investor we have become more selective in the technology sector because there are pockets of excess.  

As it stands right now, unfortunately no. We don’t have any pure IT companies listed on the local exchange. I would however like to mention WiPay. WiPay is a Trinidad based technology company that’s based around a payment solution and payment app, similar to what we see with PayPal in the US. WiPay has been flirting with the idea of listing on the Jamaican stock exchange, however I’d hope they’d also consider cross listing onto the TT market, I think that would be a great investment opportunity into one of our own. We do wish to see a lot more listing of local companies on the market. We have the SME market now that provides great tax incentives for the businesses who list so I think that should encourage more companies to list on the public market. And as for technology companies, we would really love to have them.