There were mixed results on the markets last week since the credit-rating downgrade and negative outlook on Jamaica issued by Standard & Poor's, but trading eventually stabilised.

Government of Jamaica (GOJ) Global Bonds saw a short drop and then stabilised this week. Volumes and demand remain low, indicating a low response to the downgrade. However, bond prices are expected to decline further as bondholders can respond by offloading GOJ bonds, and the number of sellers who outnumber buyers or bondholders see this as an opportunity to pick up bonds at very attractive yields.

This is dependent on whether the government makes a definite statement on whether it intends to restructure the country's international debt.

Without a definite statement of not intending to restructure, the bond prices can fall off. As at end of trading on Friday, the government of Ecuador 9.375 per cent Global Bond 2015, which has the same CCC+ rating as the GOJ nine per cent Eurobond 2015, had bid yield of 14.84 per cent. The Jamaican bond had a 10.03 per cent yield.

This signals that the GOJ 2015, as well as other GOJ Global bonds, can fall further.

On the local bond market, the GOJ will be issuing the following local bonds August 19-21:

The GOJ Variable Rate Investment Bond 2010-2011 Series Bz - interest fixed at 20.60 per cent per annum for six months. Thereafter, interest will be calculated at WATBY plus 1.625 per cent; maturity dare, August 19, 2010.

GOJ fixed rate 17.875 per cent Investment Debenture 2013 Series Bu - tenure four years, with quarterly interest payments; maturity date, August 19, 2013.

At 17.875 per cent, the yield on the fixed-rate instrument signals the Government's intention to lower interest costs, as well as to extend maturities for longer periods.

STOCKS

It should be noted that an additional clause has been added to the two instruments as it relates to repayment of the bond: "The Government reserves the right to redeem the registered bond, either in part or in whole, by drawings or otherwise, before the final redemption date, subject to two months' notice to the bondholders."

The Jamaica Stock Exchange Market Index closed on Friday at 80,241.14 points, which was a marginal increase of 0.09 per cent from the week before.

The top volume leaders' closing prices were Natioal Commercial Bank ($13.00), amounting to 56.4 per cent of market volume, followed by Jamaica Broilers ($4.08) and Sagicor Jamaica ($5.35), amounting to market volumes of 8.44 per cent and 8.38 per cent, respectively.

In a declining interest-rate environment, there is normally an increase of activity with flow of funds to the stock market. However, investors should be concerned about the erosion of the book value of companies, mainly due to the decline of bond values as part of their asset base.

Large financial stocks have a large number of GOJ bonds in their asset base that can impact their bottom line. The state of the economy and the implications of consumer spending and revenues will be more an issue to investors in the stock market than the overall impact of the country's downgrade.

DIVIDEND NEWS

Jamaica Money Market Brokers paid dividends on Friday, August 14, to the following preference shareholders:

JMMB 12% - $0.03 per share

JMMB 12.15% - $0.035438 per share

JMMB 12.25% - $0.030115 per share

Expect dividend payment on Friday, August 21, for shareholders on record as at July 31 of Carreras Group Ltd at $1 per share.

First Jamaica Investments Jamaica has declared 25 cents per share payable on September 18 to stockholders on record as at September 3. The X-date is September 1.

Pan Jamaican Investment Trust has declared a dividend of 30 cent per share payable on September 25 to stockholders on record as at September 3. The X-date is September 1.

FOREIGN EXCHANGE

The USD sold between $88.90 to $89.00 through last week. It closed at a weighted average of approximately $88.95 to US$1.

It is expected that the stability in the forex market will hold for the next six to 12 months, due partly to moral suasion, but also the expected inflow from the International Monetary Fund (IMF) agreement, as well as funding from multinational organisations, which are contingent on an IMF agreement.

Paula Brown is an executive wealth advisor at NCB Capital Markets Limited. Email: brownpv@jncb.com