Forget the gloomy Old World and look to the New for investment options, says Deborah Benn

With eurozone woes continuing to dog investors, emerging markets are providing some shelter from the doom and gloom. And two of the top ten performing stock markets in 2011, Jamaica and Trinidad and Tobago, could both turn out to be investment hotspots to watch.

The Trinidad and Tobago Stock Exchange returned 19.3 per cent in 2011, finishing in 5th place, and the Jamaica Stock Exchange Market Index returned 12.8 per cent, putting it in 6th place, according to a survey by Business Insider. This compares to a return of 6.3 per cent by the Dow Jones Industrial Average, which trailed behind in 10th position. Much of the news has recently focused on Jamaica’s prospects, where Portia Simpson Miller is the newly elected prime minister. Simpson Miller has pledged to ease poverty and boost the economy, as well as drop the Queen as head of state.

Another recent development has been the interest shown by a country many see as the next global power house – China. In the last quarter of 2011, the Chinese have committed to heavy investment in infrastructure projects across the Caribbean, including a national stadium and a tourist development – the largest in the Caribbean – in the Bahamas.

However, for those interested in investing in the Caribbean and not able to take advantage of local fund opportunities, the main problem is one of access. A number of fund managers, such as Templeton, J.P Morgan and Martin Currie offer frontier or emerging market funds that give exposure to markets that are difficult for investors to access directly. But allocation to the Caribbean in these funds can often be quite low, due to the relatively small size of the individual stock markets.
Size, visibility and liquidity are crucial for fund managers looking to invest in a market – even emerging ones. However, the launch by J.P. Morgan of its Next Generation Markets Index can only improve the situation. The index covers 18 countries, including Jamaica and the Dominican Republic, providing the ability to track the fixed income market of the smaller emerging market economies.
“Next Generation emerging markets will continue to gain investor interest due to high yields and continued growth momentum,” explains Joyce Chang, Global Head of Emerging Markets and Credit Research at J.P. Morgan.

Indeed, Stuart Culverhouse, chief economist at specialist investment broker, Exotix believes there are some potentially good returns on offer from the fixed income sector. “Bonds offer more stability than equities and less risk, plus we have seen some reasonable returns such as 7 per cent from Jamaica and 5 per cent from Barbados over the past year,” he says.

Looking ahead, a continued reduction in the Caribbean’s economic over-reliance on advanced economies, such as the United Kingdom and the United States, and the ongoing development of trade links with emerging economies such as India, Brazil and China may just provide the additional impetus fund managers require to look more closely at this market. In doing so it could open up some interesting diversification opportunities for investors willing to take a long-term bet.