The current economic environment is proving to be a major headache for investors, with one investment firm reporting that the low level of foreign exchange reserves was limiting its ability to diversify its portfolio.
In addition, Investment Director of Fortress Fund Managers Roger Cave said, the recent downgrade of Barbados’ long-term local currency sovereign credit rating to ‘CCC’ from ‘CCC+’, was a cause for concern.
Late last month international ratings agency Standard & Poor’s issued the downgrade, adding that it was affirming its long-term foreign currency sovereign rating at ‘CCC+’. The outlook on both long-term ratings is negative.
The New York-based agency highlighted Government’s high deficit at an estimated six per cent and an overall debt of about 140 per cent of gross domestic product, pointing out that there was a need for the Freundel Stuart administration to address its policy challenges.
During a session today with the media at Fortress’ Hinks Street, Bridgetown office, Cave told business journalists that like those before it, the most recent downgrade was one of serious concern for investors.
“I think the downgrades are a concern obviously for everyone, particularly for investors like ourselves. It means that [Government’s] ability to repay and honour the debt repayments when they come due is clearly a concern to the ratings agency and by extension, ourselves as investors. So it is a concern.
“But we are hopeful that steps are being taken by policymakers to correct the situation from where it is,” he said.
Cave said the stalled economy continued to be a difficult one for companies to operate in, pointing out that the country’s debt levels and widening deficits had resulted in increased taxes, thereby putting pressure on the economy.
In addition, the Fortress executive pointed to the low reserves, which fell below the international benchmark of 12 weeks of import, to reach just 9.7 weeks of import or $635.5 million at the end of June this year.
This situation, which has led a tightening of foreign exchange controls, has been impacting on Fortress’ ability to further diversify its portfolio, he said.
“It does create a challenge because our foreign reserves are not where they were [more than a year ago]. So the ability to access foreign exchange limits the ability to invest both regionally and internationally. So to diversify our portfolio it is a challenge.”
Despite the lingering dark clouds, however, Cave said the tourism industry, which is expected to have another record year in terms of long-stay arrivals, was a light at the end of the tunnel and should “result in some growth to help local companies”.
And amidst the disappointing economic performance, Fortress Fund Managers’ Caribbean Growth Fund, Caribbean High Interest Fund, and Caribbean Pension Fund, continue to perform well, posting strong results for the third quarter ending September 30, 2017.
“Our investment overseas has contributed to strong returns,” Cave said, adding that the growth was especially driven by investments in the Jamaican and international markets.
The Caribbean Growth Fund gained 3.2 per cent during the quarter and was up 12.5 per cent over the past year. The High Interest Fund gained 0.5 per cent for the quarter and was up 2.4 per cent for the year.
Meanwhile, the three classes of share that comprise the Caribbean Pension Fund were up between 3.5 per cent and 9.9 per cent over the past year.
Cave said he expected the strong performance to continue in the coming quarters, adding that the performance was due mainly to the company’s choice of investments.