Week. Market Analysis and Commentary. Jamaican Stock Market. Week ending July 30, Weekly Movement in Indices. Most Active Stocks

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1 JSE Main & Composite Indices Jamaican Select Week Annya Walker Research Manager Tel: Simone Hudson Research Analyst Tel: Richard Gordon Research Analyst Tel: Week ending July 30, 2010 Jamaican Stock Market 95,000 85,000 75,000 65,000 3,300 3,000 2,700 2,400 2,100 1,800 1,500 Market Analysis and Commentary The week over week volatility in the stock market continued last week with the stock market erasing some of the gains made in the previous week. Trading activity was fairly subdued with volumes amounting to just 10.21Mn units valued at $143.94Mn. Most of the stocks that traded ended on the downside as 16 stocks declined, 11 advanced and 4 traded fl at. Among the decliners were Gracekennedy and Lascelles which both reported lower earnings for the June quarter. The result of this was a points or 0.26% decline in the Main Index; while the All Jamaican Composite Index fell by points or (0.45%). The Select Index however managed to eke out a 0.71 point or (0.03%) gain, helped by advances in National Commercial Bank and Scotia Group Jamaica. 55,000 1,200 Jan-09 Mar-09May-09 Jul-09 Sep-09 Nov-09Dec-09 Mar-10May-10 Jul-10 Weekly Movement in Indices Indices Closing Levels Change JSE Market Index 85, All Jamaican Composite 81, 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 % NCBJ 3,651, % CWJA 2,207, % JBG 1,197, % $ Change % Change Winner: MFP $ % Winner: CCFG $ % Loser: LAS -$ % Loser: RJR -$ % The monthly results mirrored last week s performance as the two larger indices recorded declines. Going forward, the volatility in the stock market could persist throughout the summer period particularly in light of the weak earnings releases which could further dampen investor interest. That said, the current low interest rate environment and the likely increase in institutional activity means that the local equities market is likely to rebound in the short term. Three Flavours of Lasco to Choose from Companies in the Group to Go Public in August In a few weeks, Lasco will add three additional options to the menu of Junior Market listings. These are Lasco Manufacturing, Lasco Distributors and Lasco Financial Services. The three companies will be formed from the amalgamation of the eight companies which currently operate under the Lasco brand. In a briefi ng held with investors on Thursday July 29, 2010, the company outlined plans to raise between $380M to $490M from the listing of all three entities. The largest share (between $180M to $230M) is to be raised for Lasco Manufacturing Limited which according to management has signifi cant growth potential. The company intends to use the proceeds to further expand local and export operations. In particular, Lasco intends to build new manufacturing facilities; increase diversifi cation of its operations to meet global demands and upgrade its IT infrastructure to improve effi ciencies. A portion of the shares will be reserved for groups that the company has sponsored over the years. These include the Nurses Association of Jamaica, Jamaica Constabulary Force, Jamaica Teachers Association and Caribbean Community of Retired Persons

2 (CCRP). Our thoughts Lasco has demonstrated its ability to grow its market share in most of the markets in which the company entered mainly through price penetration and intense marketing efforts. The current recession could have boosted the demand for the company s products as consumers would have opted for cheaper products which Lasco provide. Given its strategy however, there is the need to improve effi ciencies as margins are very thin (NPM: 3.2%). As it relates to the stocks, the Lead broker for the transaction noted that prices will range from $2.00 to 3.50 and multiples will range between 4.50X and 5.50X. These multiples are relatively attractive when compared to the average P/E on the Junior market (we await the prospectus before making a recommendation on the stock). It was also noted that the dividend policy will be a distribution of between 10% and 20%. Further, the fl oat is likely to be larger given that more than 50% of the offer will be available to the general public. GK profi t down 32.6% in Q2 GraceKennedy continues to reel from the effects of the local recession, the JDX and the recent revaluation in the local currency. With revenues declining by 8.3%, net profi t plummeted 32.6% in the second quarter (Q2) to $540Mn. Net profi t for the 6-month period was down 21% to $1.37Bn. GK s performance should be aided in the subsequent quarters by effi ciencies gained from the opening of its new Distribution Centre. Outside of this, the company will be challenged to grow revenues in the current weak economic climate. H&L saw turnaround in its operations Hardware & Lumber saw a turnaround in its operations in Q2 helped by cost reduction strategies and the revaluation in the local currency. The company reported net profi t of $3.4Mn a vast improvement on the $26.6Mn loss recorded in the same period last year. Q2 profi t however was insuffi cient to offset losses made in the prior period as losses for the 6-month period amounted to $6.2Mn (H12009: Net loss of $139.6Mn). J$ Money Market Moderate liquidity conditions continued into last week in the local money market due primarily to large infl ows from OMO maturities. Overnight rates ranged from 4.0% to 5.0%, while 30-day rates were between 8.25% and 9.10% respectively. Trades continue to be executed along the shorter end of the curve as brokers remain cautious of potential rate cuts. Foreign Exchange Market Selling Close: Close: Change 23/07/10 30/07/10 J$/US$1 $86.31 $ $0.22 J$/CDN$1 $83.02 $ $0.16 J$/GBP 1 $ $ $.09 Dealers provided the bulk of demand in the foreign exchange market last week. Overall demand however has notably declined as action was relatively subdued on the end-user side. As a result, the selling rate for the US$ decreased to between J$85.95 and J$ The weighted average exchange rate closed at $86.09 on Friday. GOJ Bonds Trading activity was fairly subdued even though we saw more sellers coming to the market. The 2019s were the most actively traded bonds with trades occurring at 102 early in the week and falling to at the close of the week. There were offers on 15s at 107, 17s at 116, 25s at 108 and Airj 27s at 97. While there is still some interest in the global bonds, buyers have been trying to acquire bonds closer to the bid levels. Activity in the local bond market has also been slow but this is more a function of buyers unwillingness to accept lower yields as sellers price in a rate cut. 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 Weekly 1,300 1,200 1,100 1,000 Trinidad & Tobago Update T&T Stock Market Indices Jan-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 All T&T Index Composite Index Market activity slowed to a crawl on the Trinidad & Tobago stock exchange particularly in end-week activity. Just 85 trades took place as market volume amounted to just 167,043 units valued at TT$999.95Mn. There were no advancers as all price movements during the week were negative. As a result, The Composite Index declined 2.73 points, the All T&T Index slipped 4.00 points and the Cross- Listed index declined 0.18 points. The decliners were Scotia Bank TT (down $1.00 to close at $34.00); Sagicor Financial Corporation (down $0.15 to close at $9.05); Capital and Credit Financial Group (down $0.02 to $0.20) and Jamaica Money Market Brokers Limited (lost $0.01 to $0.27) Headline Inflation Rose to 13.7% in June According to data released by the Central Statistic Offi ce in Trinidad, infl ation continues to increase at a brisk pace. Headline infl ation for the twelve month period to June increased to 13.7% from 9.6% in the previous month. The June outcome represents the highest year over year increase since October 2008 when infl ation peaked at 15.4%. For the month of June, infl ation rose by 3.7%. The increase in headline infl ation over May was largely infl uenced by an unexpected rise in domestic food prices. Weather-related factors have put upward pressure on domestic agricultural supplies resulting in signifi cant volatility in some basic food prices. However, core infl ation, which excludes food prices, remained virtually unchanged from the previous month at 4.3%. The steadiness of the core infl ation rate since the beginning of the year, along with the slow movement in producer prices suggest that underlying infl ationary pressures have not accelerated. Although the increase in consumer prices is mainly supply driven, the Central Bank believes that the high rate could spill over into wage and general price setting behavior. At the same time, reversing the current accommodative policy stance too quickly could stifl e emerging growth prospects. Against this background, the Central Bank continues to maintain its Repo rate at 5%. Source: Trinidad and Tobago Central Bank EXCHANGE RATE: Exchange Rate TT$1/J$

4 International News US stocks appreciated marginally last week buoyed by mixed earnings news and some positive economic data. The week started off positively with data released from the embattled housing sector beating analyst estimates. These estimates however had been lowered signifi cantly due to the downward trend in recent months. Still, the June level is the second lowest pace in history, following the record set in May. However, a worse-than-forecast consumer confi dence number for July tugged stock prices downward. The Fed s Beige Book echoed a similar tone- that of slower recovery in the economy but noted the possibility of an additional round of quantitative easing. The slowdown in economic activity was confi rmed at the end of the week with the GDP report showing the US economy grew by 2.4% in the second quarter down from 2.7% in Q1 and 5.6% in Q The slowdown refl ects continued weakness in the job market and still elevated unemployment levels which eroded consumer spending. With the growth momentum in the US economy losing steam, the unemployment data set to be released at the end of this week could refl ect continued weakness in the job market. New Home Sales M-o-M increased 23.6% ABD Confi dence Index increased to 48 from 45 in the previous month Initial Jobless Claims fell to 457K from 464K GDP for the second quarter came in at 2.4%, less than the 2.7% forecast. Global Economy May Slow to 3.25% From 4.7% Average July 26 (Bloomberg) The new normal for the world economy may be arriving as the U.S., Europe and China all decelerate simultaneously. After policy stimulus and inventory-rebuilding pulled the major economies out of recession with 5 percent growth in the fi rst quarter, they are slouching toward a weaker expansion, even as they show signs of dodging a double-dip. Global growth may average 3.25 percent to 3.5 percent in the next three to fi ve years, well below the 4.7 percent pace of the fi ve years leading up to the 2008 slump, estimates Stephen Roach, non- executive chairman of Morgan Stanley Asia. Chinese growth also may ebb as the world s most populous country reorients its economy away from manufacturing and exports. June Sales of U.S New Homes Climb More Than Forecast July 26 (Bloomberg) Sales of U.S. new homes rose in June more than forecast following an unprecedented collapse the prior month, a signal the worst of the slump triggered by the end of a government tax credit is over. Purchases increased 24 percent from May to an annual pace of 330,000, fi gures from the Commerce Department showed today in Washington. The rate was the second-lowest in data going back to 1963 after May s downwardly revised 267,000 pace. The lowest mortgage rates on record may help underpin demand, stabilizing the industry that triggered the worst recession since the 1930s. Even so, increasing foreclosures are swelling the number of unsold existing homes, putting pressure on prices and keeping buyers on the sidelines as unemployment hovers near 10 percent and the economy cools. Consumer Confi dence in U.S. Falls to Five-Month Low July 27 (Bloomberg) Confi dence among U.S. consumers declined in July to a fi ve-month low, a sign the lack of jobs will limit the economy s recovery. The Conference Board s confi dence index fell to 50.4 from a revised 54.3 in June, fi gures from the New York-based private research group showed today. The gauge was forecast to drop to 51, according the median estimate in a Bloomberg News survey. Sentiment may be slow to improve until companies start adding to payrolls at a faster rate, and the Federal Reserve projects unemployment will take time to decline. Today s fi gures showed income expectations at their lowest point in more than a year, posing a risk for consumer spending that accounts for 70 percent of the economy. Economy in U.S. Expanded 2.4% as Trade Gap Widened July 30 (Bloomberg) Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, refl ecting a larger trade defi cit and an easing in consumer spending. The increase in gross domestic product compared with a median forecast of 2.6 percent of economists surveyed by Bloomberg News and follows an upwardly revised 3.7 percent pace in the fi rst quarter that showed a jump in inventories, according to fi gures from the Commerce Department today in Washington. Business investment climbed at the fastest rate since A slower pace of growth means employers may be reluctant to hire workers and more likely to keep a lid on prices in order to boost sales. U.K. Consumer Sentiment Falls to Lowest in 11 Months July 30 (Bloomberg) U.K. consumer confi dence fell more than economists forecast this month as the prospect of government spending cuts undermined Britons optimism on the economic recovery, GfK NOP said. An index of sentiment declined to minus 22 from minus 19 in June, the lowest in 11 months, the market researcher said in an ed statement today in London. Economists had forecast a decline to minus 20, based on the median of 18 estimates in a Bloomberg News survey. Chancellor of the Exchequer George Osborne is cutting welfare spending and increasing sales tax to reduce the record budget defi cit, threatening growth. Bank of England Governor Mervyn King said July 28 there may be a considerable way to go before economic conditions stabilize enough to allow interest rates to rise to a normal level. A measure of Britons assessment of their personal fi nancial situation over the next 12 months dropped 4 points to minus 6 in July. A gauge of their outlook for the economy plunged 13 points to minus 25. 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