Issue No. 29

For the month ended December 2022 the TT Composite Index returned 2.12%, driven upwards by both its constituent indices. The All T&T Index increased by 2.32% stemming from gains in Agostini’s Holdings Limited (AGL) of 16.28%, Ansa McAl Limited (AMCL) of 8.42% and Guardian Holdings Limited of 4.57%. The TT Cross Listed Index increased by 1.43% over the month due to positive returns of 6.45% in FirstCaribbean International (FCI) and 4.95% in JMMB Group Limited (JMMBGL). Over the month 13 stocks increased, 10 declined and 2 held firm. All indices declined during 2022 as negative sentiment permeated the market dragging prices downwards. Overall, companies reported improved earnings as pandemic restrictions were removed and businesses were able to operate at full capacity. Given the compressed valuations at present for 2023 we anticipate a modest appreciation in prices as investors re-enter positions as macro headwinds dissipate.

For the month December 2022 the S&P 500 Index returned -5.90%.  In December investors continued to analyze the impact the pace of rate hikes will have on the economy.  The index was down -19.44% for the year-to-date period ended December 31^st, its worst annual performance since the 2008 Global Financial Crisis. All sectors declined over the month, with Technology and Communications being the largest detractors falling of -7.1% and -6.7% respectively. For the year just three sectors experienced growth and the Energy sector significantly outperformed with a return of 57%. Communications was the worst performing sector for the year, tumbling 27.2%. Throughout the year stubborn inflation and aggressive rate hikes depressed investor sentiment. Furthermore, investors were faced with continued Covid issues in China along with geopolitical problems.

In December the estimate for US’s third quarter GDP was revised upwards from 2.9% to 3.2% on an annualized basis, stemming from revisions to personal, government and services consumption. This gain followed two consecutive quarters of decline. Other reported economic indicators remain mixed with Retail Sales declined by -0.6% in November, more than the consensus forecast of -0.2%. Meanwhile consumer confidence, an indicator of future developments of household consumption and saving, rose by 6.80% to an eight-month high of 108.3 from 101.4 in November. The Central Bank has lowered its GDP forecast for 2023 from 1.2% to 0.5% and increased its inflation forecast from 2.8% to 3.1%.

Energy prices were relatively flat month on month with WTI Crude decreasing from $80.55 in November to $80.26 at the end of December. Several uncertainties will impact energy performance in 2023. A recovery in aviation to 2019 levels, the re-opening of China and the EU embargo on Russia can all lead to increased oil prices. Looking forward volatility is expected to persist but taking into account cooler inflation and a less hawkish Fed we are cautiously optimistic that a bounce in equity markets will follow the unprecedented declines experienced in 2023.

In seeking market outperformance, suggestions are for emphasis on traditionally defensive and conservatively valued sectors, along with individual companies with strong balance sheets and steady cash flows

Fund of the month:

Scotia Caribbean Income Fund (US$)

-Fixed Income securities issued by Caribbean corporations and governments

-Low to Medium Risk

Yields were modestly higher at all across the curve when compared to the prior month. The 1-year rate moved up slightly in December to 1.06% from 1.05% in November, while the 10-year moved from 5.16% to 5.18%.

Month over month liquidity decreased by 2.9% from $6.9 billion on November 30th, 2022, to $6.7 billion as at December 31^st, 2022 but remains elevated versus its longer term average. Throughout 2022 both TTD Corporate and TTD Government issuances were relatively sparse. Private sector companies are slowly reentering the market and we expect additional corporate issues over the next six months. There was some recovery in exconomic activity in both the energy and non-energy sectors. The latest data showed that headline inflation came in at 6.2% in September. Food inflation, the main driver, registered at 11.6%.  The unemployment rate climbed from 4.5% in the second quarter of 2022 to 5.4% in the third quarter of 2022. Considering current economic conditions ,the Central bank held the repo rate at 3.5% in its last monetary policy report.

US Investment Grade corporate spreads, as measured by the CSI BBB Index, decreased by -3.77% from   1.93% to 1.86% over the month of December. Over the year the index increased 53.6% from 1.21% in December 2021. The US 10-year Treasury yield increased over the period, from 3.61% on November 30^th to 3.87% on December 31^st.  The 10-year has risen 236 basis points this year, its biggest yearly climb in decades. The 2-year and 10-year yield remains inverted, the spread was at 0.54% at the end of December as the 2-year yield closed the year at 4.41%.  Looking forward into 2023, the Fed will continue to face higher than targeted inflation. As a result, interest rates are expected to be above 5% by the end of 2023.