Week. Market Analysis and Commentary. Jamaican Stock Market. November 04, Weekly Movement in Indices. Most Active Stocks

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1 JSE Main & Composite Indices Week Annya Walker Research Manager Tel: Simone Hudson Tel: Richard Gordon Tel: November 04, 2010 Shellon Williams Tel: ,000 85,000 75,000 65,000 Jamaican Stock Market 55,000 Oct-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Movement in Indices Indices Closing Levels Change JSE Market Index 83, All Jamaican Composite 78, Jamaica Select Index 2, JSE Cross Listed Index Most Active Stocks J S E MI J S E AJ C J S E S E L Top Winners & Losers This Week Units Traded % RJR 4,113, % JBG 3,968, % CBNY 1,440, % $ Change % Change Winner: MIL $ % Winner: HL $ % Loser: CBNY -$ % Loser: CWJA -$ % Market Analysis and Commentary Positive earnings release from a few listed companies roused market sentiment, resulting in the upward movement in the stock market indices last week. The positive releases came mainly from companies in the fi nancial sector despite the adverse impact of the Jamaica Debt Exchange program earlier this year. On the other hand, companies in retail and trading continued to fi nd the going tough due to weaker consumer demand and the reduction in interest income. Nevertheless, investors focused mainly on the positive news which resulted in the Main Index increasing points (0.65%); the Composite Index adding points or 1.13%; and the JSE Select Index advancing points or 1.6%. Market volumes were half that of the previous week, as 13.3Mn units valued at $98.1Mn changed hands. Radio Jamaica Ltd accounted for 30.70% of the market volume, followed by Jamaica Broilers with 29.62%. Earnings Releases In the year in which the fi nancial sector was adversely affected by the JDX, NCBJ posted an 8.1% increase in net profi t to surpass the $11.00Bn mark- (Net profi t of $11.07Bn or $4.50 per share). The group recorded increases in all major income categories which helped to negate the increase in operating expenses. NCBJ also benefi tted from improvement in the performance of its associate company-kingston Wharves as a share of profi t was recorded in the current year relative to losses in the prior fi nancial year. Mayberry Investments Limited (MIL) saw net profi t for the third quarter jumping 5 times to $90.6Mn ($0.08). This follows a weak fi rst half performance which was adversely impacted by foreign exchange losses. The period under review saw all major income lines increase considerably. The company continues to market itself as the premier broker for junior market listings and continues to gain traction in the market as it has brokered all six companies listed on the junior market. Although the company will continue to be a major player in this arena and fee income will increase as a result, our expectation is that earnings for the current fi nancial year will still fall short of last year. Capital and Credit Financial Group (CCFG) recorded a 31% increase in net profi t for the third quarter to $123.5Mn (EPS:$0.13). While revenues fell 26% to $454.1Mn as a result of lower foreign exchange gains, the 39% reduction in operating expenses was the primary catalyst behind the improved performance. Major reductions were seen in the loan loss provision and other operating expenses which were reduced by 88% and 36%, respectively. Net profi t for the nine month period stood at $268.5Mn ($0.29); 14% higher than

2 that recorded in the same period last year. Seprod Limited reported its third consecutive quarterly decline since the beginning of the year. For the third quarter, the company reported a 27% fall off in net profi t to $218.4Mn (EPS:$0.51). Of note, this is the slowest pace of decline since the beginning of the year following declines of 41.2% and 64% in the fi rst and second quarters, respectively. Year to date net profi t is down 35% to $852.8Mn ($1.51). The company is expected to continue feeling the effects of lower interest income from the JDX as well as lower foreign exchange losses, but should see some improvement in the revenue line during the December quarter. Despite an improvement in margins, Hardware and Lumber (HL) continued to report losses in the third quarter. The company reported net losses of $7.4Mn compared to losses of $43Mn in the same quarter last year. However, for the nine month period, losses have decreased relative to the previous fi nancial year ($13.6Mn compared to losses of $182.7Mn over the same period last year). The company anticipates that several infrastructural and housing projects announced will, over the medium term, lead to increased demand for its products. That said, given the current weakness in the construction sector and the adverse impact of the severe weather conditions on the agricultural sector, the company could continue to produce lacklustre results in the near term. Lasco Group of Companies There were mixed results among the Lasco companies in the fi rst quarterly release since its listing on the junior market. The Manufacturing arm was the best performer reporting net profi t of $121.9Mn representing an increase of over 140% relative to the previous year. Both the Financial Services and Distribution arms witnessed declines in their quarterly earnings. Lasco Financial services reported profi ts of $4.7Mn, almost one fourth of what was earned during the corresponding period last year; while Lasco Distributors saw profi ts falling 9% to $50.3Mn. Going forward these companies should benefi t from tax incentives provided as a result of being listed on the junior market, which will aid an improvement in bottom-line earnings. J$ Money Market Large infl ows from OMO maturities meant that liquidity levels remained high in the local money market, particularly given the absence of government instruments and low activity in the secondary market. Overnight rates were between 4.00% and 6.00%; while 30-day rates were in the range of 7.50% and 8.05%. With just under $21.66Bn fl owing into the market from OMO maturities this week, liquidity levels should remain very high. Foreign Exchange Market Selling Close: Close: Change 28/10/10 05/11/10 J$/US$1 $85.61 $ $0.08 J$/CDN$1 $83.07 $ $1.70 J$/GBP 1 $ $ $2.28 Foreign exchange market activity was largely subdued last week due to the threat of the Tropical Storm to the island. The US$ traded in the range of $85.55 and $ On Friday, the weighted average exchange rate closed at J$85.69/US$1. GOJ Bonds Global bond demand has moderated as investors are becoming wary of acquiring bonds at yields that are nearing pre-lehman bankruptcy levels. Activity was moderate with 2025s trading at 110 while 19s traded at There were offers on the 36s and 39s at 104 and 100 but no reported trades. On the local side there were bids on the FR 2024s at 11.65% and 2014s at 9.25%. Indicative Levels - GOJ Globals Bid Offer Offer Yield* % % % % % % % % % % *NB: The rates quoted above are opening indicative levels on the international market and are subject to change as market conditions vary throughout the trading session. Additionally, the prices quoted to clients of NCB Capital Market Limited (NCBCML) are adjusted to refl ect the costs associated with completing the transaction on the respective client s behalf. 2

3 All T&T Index Composite Index 1,300 1,200 1,100 1,000 Trinidad & Tobago Update T&T Stock Market Indices Jan-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Nov-10 All T&T Index Composite Index The third quarter earnings season provided a fi llip to equity market activity in Trinidad & Tobago. Republic Bank Limited registered the biggest dollar value increase as the company reported a 3.4% increase in its net profi t for the fi nancial year despite operating in an environment characterized by falling interest rates and declining loan demand. Net profi t of TT$1,074Bn (TT$6.14 per share) or J$14.46Bn means that Republic Bank is one of the most profi table fi nancial institutions in the Caribbean with total assets of TT$45.90Bn or J$617.84Bn. These factors are likely to make it a favorite among investors. Cross-listed stocks such as Capital and Credit Financial Group and National Commercial Bank Jamaica also reported higher earnings during the period. Overall market activity resulted from trading in 23 stocks of which 6 advanced, 4 declined and 13 traded fi rm. Market volume amounted to 1.3Mn units valued at over $20.7Mn. Scotia DBG Limited was the volume leader with 423,841 units, followed by Neal & Massy Holdings Limited and One Caribbean Media Ltd with 172,126 units. West Indian Tobacco Limited (WCO), National Commercial Bank Jamaica (NCBJ) and the Republic Bank Limited (RBL) all announced dividend payments this week. WCO will pay $1.29 on November 25th to shareholders on record as at November 16th, while NCBJ s shareholders on record at November 18th will receive $0.45. RBL shareholders should expect to receive $2.40 on December 3rd T&T s economy stagnant Williams The Trinidad Guardian (Published: 5 Nov 2010) T&T s economy is weak and there is the possibility that there would be no economic growth for This is the projection of the Central Bank Governor Ewart Williams. People are not spending money, consumers are not spending. They are saving. The deposits in the banking system have been increasing at a much faster rate. The unemployment rate has increased and therefore domestic demand, which is the capacity to spend if you add the savings and the fact that fewer people are working, it means expenditures in the system are lower than they would have been otherwise, he said. Williams said this yesterday at a press conference at the Central Bank in Port-of-Spain where details of the Monetary Policy Report were given. Williams spoke about a continued decline in the non-energy sector. He noted that it is the sixth consecutive quarter that there has been a decline in nonenergy GDP. Several demand indicators support this picture of a very weak activity in the non-energy sector, he said. He itemised the demand indicators by pointing to the 18 per cent decline in retail sales in the fi rst six months of the year, the 39 per cent decline in non-oil imports and the 12 per cent fall in automobile sales on a year on year basis to September. The unemployment rate rose from 5.5 per cent in the last quarter of 2009 to 6.7 per cent in the fi rst quarter of The report showed energy exports declined by 10.5 per cent because of lower export volumes, particularly for crude oil. It also showed that real GDP declined by 0.9 per cent in the second quarter of Infl ation surged to 16.2 per cent in August but in September declined to 13.2 per cent. Core infl ation still remains at around four per cent notwithstanding sluggish domestic demand, Williams said. The Central Bank Governor said that there were two possible scenarios for If global growth gains momentum, domestic private sector confi dence recovers and household spending and private investment rebounds real GDP growth is projected at two to three per cent. This would be barely to enough to create new jobs and a marginal reduction in the unemployment rate, he said. However in the less favourable scenario global growth recedes with implications for energy and non energy exports. The reports states that this could lead to another year of economic stagnation. EXCHANGE RATE: Exchange Rate TT$1/J$

4 International News Much to the delight of the market, the US Federal Reserve announced its second round of quantitative easing which gave rise to the rally in risky assets. The Federal Reserve announced that it will add another $600Bn to its $1.7Trn in direct purchases thus far. The new purchases will extend through the second quarter of next year. The jobless rate is an indicator that is being keenly watched by the Fed as lacklustre performance could prompt another round of quantitative easing given the Fed s promise to closely monitor the progress and adjust the program as needed. US Unemployment rate held fi rm at 9.6% in October, but continues to show positive signs as payrolls increased more than forecast. While the Fed has gone ahead with its actions to stimulate economic growth, The Bank of England (BOE) kept its assetpurchase programme on hold. Additionally, the BOE held interest rates steady at a record low of 0.5% as the British economy shows signs of unexpected strength. That said, the optimism from the recently announced stimulus could fl ow into the current week and keep investors interest in risky assets elevated. Personal Income fell 0.1% less than 0.2% growth forecasted ISM Manufacturing Index increased to 56.9 from 54.0 Initial Jobless claims increased to 457K above analysts forecast of 442K Unemployment rate stood at 9.6% India Central Bank Raises Rates Sixth Time This Year Nov. 2 (Bloomberg) India s central bank raised interest rates for a sixth time this year in Asia s fastest round of increases and said the chance of further policy tightening in the immediate future is relatively low. The Reserve Bank of India boosted the repurchase rate by a quarter-point to 6.25 percent and the reverse repurchase rate by a similar margin to 5.25 percent with immediate effect, according to a statement in Mumbai. Fifteen of 23 economists had predicted the decision in a Bloomberg News survey. The central bank s rate increase is aimed at slowing the fastest infl ation after Argentina in the Group of 20 nations and at protecting the purchasing power of 75 percent of Indians who live on less than $2 a day. Consumer prices rose 11.1 percent in Argentina in September, while CPI for industrial workers gained 9.9 percent in India. U.S. Services Expand Most in Three Months Nov. 3 (Bloomberg) Services in the U.S. expanded in October at the fastest pace in three months, indicating the recovery is gaining strength even as central bankers loosen monetary policy. The Institute for Supply Management s index of nonmanufacturing businesses, which covers about 90 percent of the economy, rose to 54.3 from 53.2 in September. Readings greater than 50 signal growth. A separate report showed factory orders in September climbed more than forecast by economists. A faster expansion in services combined gains in manufacturing may encourage companies to increase hiring. At the same time, growth isn t fast enough to cut unemployment stuck above 9 percent since the recession ended in June 2009, explaining why Federal Reserve policy makers today announced another round of asset purchases. Fed to Buy Additional $600 Billion of Treasuries Nov. 3 (Bloomberg) The Federal Reserve will buy an additional $600 billion of Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert defl ation. Policy makers, who said new purchases will be about $75 billion a month, will adjust the program as needed to best foster maximum employment and price stability, the Fed s Open Market Committee said in a statement in Washington. The central bank retained its pledge to keep interest rates low for an extended period. Chairman Ben S. Bernanke is trying to boost growth after near-zero interest rates and $1.7 trillion in securities purchases helped pull the economy out of recession without bringing down joblessness close to a 26-year high. He s risking a strategy that may either fail or fuel infl ation and asset bubbles, said Scott Pardee, a former New York Fed offi cial who now teaches at Middlebury College in Vermont. U.S. Adds 151,000 Jobs, Unemployment Holds at 9.6% Nov. 5 (Bloomberg) Payrolls rose more than forecast in October; a sign business may be starting to look past what the Federal Reserve calls the disappointingly slow U.S. recovery toward a faster pace of growth. Payrolls climbed 151,000, exceeding all estimates in a Bloomberg News survey of economists and following a revised 41,000 drop the prior month that was smaller than initially estimated, Labor Department fi gures showed today in Washington. Private payrolls that exclude government agencies also gained more than forecast, while the jobless rate held at 9.6 percent. U.S. stock futures rose and Treasuries declined as gains in hours and earnings added to optimism that an improvement in the labor market will boost household spending. Fed policy makers this week announced a second round of largescale asset purchases in a bid to boost growth, even as reports showed larger-than-forecast gains in retail sales and manufacturing. 4

5 NCB Capital Markets Ltd (formerly Edward Gayle and Co.) established in 1968 is Jamaica s oldest stockbrokers. The company became a part of the NCB Group in 1994 and a fully owned subsidiary in October In December 2002, the then Edward Gayle and Co. was merged with another NCB subsidiary, NCB Investments. The products distributed by this combined subsidiary cover the traditional money market product offerings (J$ and US$ Repos), primary dealer services, stock brokerage and investment advisory services. Edward Gayle was renamed NCB Capital Markets Ltd. in October NCB Capital Markets Limited ( NCBCML ) through its representative(s) has provided information to you on various financial products and services and investment opportunities for information and educational purposes only. While NCBCML has made every effort to ensure that the information provided to you is accurate and based on research and analysis that we have carried out or derived from sources that we believe to be accurate and reliable, NCBCML makes no representations or warranties about the accuracy, completeness or suitability for any purpose of the information published and will not be liable for any loss which you or anyone else may suffer in reliance on the information we have provided to you. This Report does not take into account the specific investment objectives, financial situation or particular needs of any specific recipient and therefore this Report should not be regarded by recipients as a substitute for the exercise of their own judgment or for obtaining advice directly from one of our investment advisors. Important Disclosures: The views expressed in this report are the views of NCB Capital Markets Ltd at the date of this report. In accordance with Section 39 (I) of the Securities Act of 1993, NCB Capital Markets Limited hereby states that it is a subsidiary of NCB Jamaica Ltd. and to that extent may be regarded as interested in the acquisition or disposal of the shares of NCB Jamaica Ltd. However, the company acts in a proper and professional manner in making any recommendations regarding shares listed on the Jamaica Stock Exchange. Share prices may fluctuate and past performance is not necessarily a guarantee of future returns. 5