• Caribbean Community (Caricom) countries could benefit from a decision by the International Monetary Fund (IMF) to approve a set of reforms to its concessional lending facilities and an associated funding strategy to preserve the IMF's ability to provide adequate support to low-income countries (LDCs) over the long term.
• Of note, the IMF’s Executive Board reached a consensus on reforms of charges, surcharges, and commitment fees that will substantially reduce the cost of borrowing from the General Resources Account (GRA). This consensus occurred amid high global interest rates and safeguards the IMF’s financial capacity to support its members in need.
• The reform package is expected to lower IMF borrowing costs for members by about US$1.2Bn annually and reduce payments on the margin of charges and surcharges on average by 36%. The number of surcharge payers is expected to decline from 20 to 13 countries (in FY2026).
• Additionally, the IMF will reduce the margin paid over the Special Drawing Rights (SDR¹) interest rate and the time-based surcharge rate. Moreover, it will also increase the borrowing thresholds above which level-based surcharges and commitment fees apply. These changes will take effect on November 1, 2024.
• In the past Caribbean countries complained about the policies by which concessional financial assistance might be extended to help their economies, proposing, for example, that consideration be given to having credit extended to countries that have already invested in green technology.
• These reforms, therefore, balance the interests of borrowers and lenders by meaningfully reducing borrowing costs while preserving the price-based incentive mechanism and income generation capacity. 

_____________________________

¹ The SDR is an international reserve asset. The SDR is not a currency, but its value is based on a basket of five currencies-the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. One SDR=US$1.33 cents.

(Sources: IMF & Trinidad Express Newspaper)

• Foreign Direct Investment (FDI) into the Latin America and Caribbean region has recovered strongly in the last two years, following a Covid slump.  While data for 2024 has been mixed, Fitch Solutions remains optimistic that this is the beginning of a structural uptrend driven by several factors.
• First, efforts by United States (US) firms to ‘derisk’ their supply chains as the great power competition between the US and China rumbles on should support nearshoring flows into Mexico, Central America and parts of the Caribbean in particular.
• Second, the green transition will boost demand for the likes of copper and lithium, helping to drive investment into the extractive sector in economies such as Argentina, Chile, Peru and to a lesser extent Bolivia.
• Fitch also sees some scope for these economies to move up the value chain, with the potential for more of the processing of these metals and minerals to be done in local markets.
• Latin America is expected to play a large role in feeding the world’s growing population, which is expected to rise by 25% to about 10Bn by 2050. This poses substantial upside to the Brazilian economy in particular, where land is still underutilised.
• Importantly, inflows into Central American countries – beyond Costa Rica and Panama – can provide employment opportunities, stemming the flow of migrants into the US.

(Source: Fitch Solutions)

• According to the Bank of Jamaica (BOJ), Jamaica’s Net International Reserves (NIR) stood at US$5,200.53Mn at the end of September 2024, 3.9% higher than September 2023. This improvement in the NIR can be attributed to a 3.7% (or US$186.60Mn) increase in total foreign assets along with an 11.5% decline (or US$9.04Mn) in Foreign Liabilities.
• The rise in foreign assets was due to growth in Currency and Deposits to US$3,582.62Mn from US$3,412.48Mn, Securities (+1.1% or US$17.34Mn) and IMF Reserve Position balance (+0.7% or US$267.10K). However, this was slightly tempered by a 5.4% (or US$1.14Mn) decline in Special Drawings Rights.
• In September, the BOJ intervened in the foreign exchange market four times, injecting a total of US$140Mn in an attempt to stabilise the Jamaican dollar. This represented a decline from August when the BOJ conducted six interventions totalling US$180Mn.
• Jamaica’s September 2024 NIR remains relatively high and equates to 26.3 weeks of goods & services imports (25.3 weeks at the end of August 2024). At this level, the NIR is more than double the international benchmark of 12 weeks of imports. 
• Maintaining an adequate level of reserves is one of the key pillars of underwriting and ensuring macroeconomic stability. The NIR reflects the difference between gross reserves and the country’s IMF loan debts. Gross reserves measure the total value of foreign exchange and monetary gold reserves, special drawing rights, IMF reserve positions, and other assets denominated in dollars.

(Sources: BOJ and NCBCM Research)

• QWI Investments Limited (QWI) reported a net profit of $133.07Mn for its financial year ending September 2024 (FY24), a significant turnaround from the $44.12Mn net loss recorded in FY 2023. The results were spurred by strong performance across both local and overseas portfolios.
• QWI’s overseas portfolio appreciated 30.9% during the year, generating unrealised gains of $177.64Mn primarily driven by a 41% increase in its US portfolio, which represents most of QWI's overseas investments. Realised gains from its overseas portfolio grew 140.4% year-over-year to $21.26Mn.
• Similarly, market conditions in Jamaica also improved contributing to unrealised gains of $72.39Mn, a significant recovery from the unrealised losses of $94.44Mn recorded in the prior year.
• As at September 30, 2024, QWI's top U.S. holdings were Meta and Nvidia valued at US$0.57Mn and US$0.49Mn respectively, while its top Jamaican holdings are Access Financial Services and Dolphin Cove valued at J$184.4Mn and J$150.2Mn respectively.
• As the portfolio expanded, administrative and selling expenses rose 12.2% largely driven by higher accruals for investment management costs.
• The performance of its local portfolio could continue to improve over the near term. Of note, the company has undertaken the strategic sale of a poorly performing stock that had previously been difficult to sell. Locally, corporate earnings continue to be mixed. However, the decline in the market bodes well for future gains in the local stock market as investors reallocate funds from fixed-income investments and demand for stocks rises.
• QWI’s stock price has increased by 27.9% since the start of the calendar year to $0.78 on October 22, 2024, and it currently trades at a 40.9% discount to its net asset value (NAV). The most recent NAV per share was $ 1.32 as at October 11, 2023.
• This discount to NAV is a long-standing characteristic for other listed funds in QWI’s peer group, which can significantly affect investors' ability to realise the true value of their investments.

(Sources: QWI Financials & NCBCM Research)

• Mayberry Jamaican Equities (MJE) experienced reduced losses of J$256.28Mn for the 9 months ending September 2024 (9M 2024), a significant improvement from the J$2.14Bn net loss for 9M 2023. The reduced losses were primarily driven by a J$1.55Bn increase in net trading gains, largely due to the sale of MJE’s 20% stake in Caribbean Producers Jamaica Limited (CPJ).
• MJE also benefitted from a 29.1% (or J$643.73Mn) growth in unrealised gains on fair value through profit and loss (FVTPL) investments, reflecting improvements in the performance of the local stock market.
• Against this background, operating loss improved to J$115.40Mn, compared to the loss of J$1.98Bn for 9M 2023. There was also an 11.3% reduction in operating expenses, which fell to J$140.88Mn, primarily due to lower legal and professional fees.
• Overall, MJE’s performance is likely to improve in the near to medium term as the BOJ’s monetary policy easing sets the foundation for improved stock market performance. Falling interest rates and improved market liquidity are expected to boost retail and institutional investor sentiment and demand for stocks, drive stock valuations upwards and stimulate market activity, which should augur well for MJE’s portfolio.
• Mayberry holds equities in 41 companies listed on the Main and Junior Markets. However, with a 55.9% exposure to Supreme Venture Limited (SVL), there is a significant concentration risk. As such, the portfolio’s performance is heavily influenced by SVL’s share price movements.
• MJE’s stock price has increased by 2.4% since the start of the calendar year, closing Friday’s trading session at $10.19. At this price, the stock trades at a P/B of 0.7x, which is below the Main Market Financial Sector Average of 1.1x. MJE’s share price also trades at a discount to its Net Asset Value (NAV) per share of $13.12, suggesting that the stock is undervalued.
• This discount is a long-standing characteristic for other listed funds in MJE’s peer group, which can significantly affect investors' ability to realise the true value of their investments.

(Sources: MJE Financials & NCBCM Research)

• The Government of Jamaica (GOJ) signed a US$12Mn loan agreement with the World Bank Group’s International Bank for Reconstruction and Development (IBRD) for the Kingston Waterfront Improvement (KiWI) Project.
• The signing ceremony occurred on Friday (October 18) at the Ministry of Finance and the Public Service in Kingston.
• The KiWI Project involves the design and implementation of a modern park along the waterfront over five years. The park is intended to aesthetically enhance the downtown space and revitalise business interests in the area while fostering community development.
• Speaking during the signing ceremony, Finance Minister, Dr. the Hon. Nigel Clarke, disclosed that the project’s overall cost is US$40 million, with the Government providing joint financing.
• He emphasised that the project will benefit significantly from the World Bank’s technical support, highlighting that Jamaica lacks the kind of expertise required to execute the initiative.
• “By making such a significant investment [in] downtown [Kingston] to put a park, it is going to incentivise commercial developers. Real estate developers will follow behind this investment of the Government and, in so doing, revitalise the space of downtown,” he added.

(Source: JIS)

• Latin America is anxiously counting the days to Nov. 5, when U.S. voters will choose between relative continuity under Vice President Kamala Harris or a return to policies that triggered volatility in the region's largest markets and economies under former president Donald Trump.
• Trade and tariffs, as well as monetary policy's effect on global interest rates, are likely the largest avenues for the election to jolt the U.S.'s neighbouring region. Washington's economic war with China could particularly rock Mexico and boost Brazil, especially in a tit-for-tat scenario.
• On a broader level, a Trump victory would likely send shockwaves through the region, potentially putting the squeeze on some currencies and central banks even as countries that are more tied to commodities or trade with China could emerge largely unscathed.
• While the Biden administration did not roll back tariffs imposed by Trump on China, Harris' plan to keep them roughly as they are makes her a dove toward the world's No. 2 economy. Under Trump, tariffs on Chinese products would jump to around 60%.
• South American countries may be better positioned to dodge a stricter U.S. trade regime. In a recent client note from Lazard, the investment bank placed copper and lithium powerhouse Chile on a list of countries with high exposure to the US market that could be largely spared based on the less replaceable nature of their exports.
• Such calculations would become much less relevant in the case of a Harris victory. "If the Democratic candidate Vice President Kamala Harris wins, likely with a divided government, tariff risk would likely decline and we would expect lower growth and investment conditions in the United States, which could lead to sustained outperformance of EM assets," the investment bank said in its October outlook for emerging markets, published recently.

(Source: Reuters)

• Mexico is considering tax credits to attract foreign firms to invest and produce domestically, targeted at electric vehicle (EV), semiconductor, rare earth minerals, battery and electronics sectors, a top Mexican trade official said in an interview.
• The comments come as Mexico's new government assesses how to spark more investment as companies look to move supply chains closer to their main market, while simultaneously navigating a turbulent and more protectionist period in the U.S. ahead of presidential elections.
• "We are seriously analysing creating tax credit incentive programs very similar to those in the United States and Canada ... and we believe that would allow us to attract many companies to Mexico," Deputy Foreign Trade Minister Luis Rosendo told Reuters last Friday, October 18. Rosendo said the incentives would apply to companies from any country interested in investing in Mexico, including China.
• An internal government document seen by Reuters said Mexico had started working with companies such as Taiwanese electronics manufacturer Foxconn, chipmaker Intel, U.S. automaker General Motors, logistics firm DHL, and carmaker Stellantis, to identify products that can be manufactured in Mexico instead of being imported from Asia.
• Additionally, the administration of Mexico's new President Claudia Sheinbaum is carefully considering Washington and Ottawa's policies towards China, in order to be more aligned in addressing potential unfair Chinese trade practices ahead of a scheduled revision of the USMCA North American trade pact.
• "The pressure that we have... the question is what are we going to do with China in the face of some practices that sometimes seem to be unfair," Rosendo said. Mexico would continue to prioritise the U.S. and Canada due to their strategic alliance through USMCA, but that didn't imply Mexico would "break with China" or "deny them investments in Mexico," Rosendo said.

(Source: Reuters)

• China cut benchmark lending rates as anticipated at the monthly fixing on Monday. This follows other policy rate reductions last month as part of a package of stimulus measures to revive the economy.
• The one-year loan prime rate (LPR) was lowered by 25 basis points (bps) to 3.10% from 3.35%. The five-year LPR was also cut by 25bps to 3.6% from 3.85% previously. The lending rates were last cut in July. People's Bank of China (PBOC) Governor Pan Gongsheng told a financial forum last week that lending rates will decrease by 20 to 25 basis points on Oct. 21.
• The PBOC announced cuts to banks' reserve requirement ratio¹ by 50 basis points and the benchmark seven-day reverse repo rate by 20 basis points on Sept. 24. This kicked off the most aggressive stimulus since the pandemic that included measures to support the ailing property sector and boost consumption.
• It also cut the medium-term lending facility rate by 30 basis points last month. Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. Since the Sept. 24 measures, the CSI300 Index has broken records for daily moves and is up more than 14% overall. The yuan is down 1% against the dollar in that period.
• Stocks have wobbled in recent sessions, though, as initial enthusiasm gave way to concerns about whether policy support would be big enough to revive growth. Data on Friday showed China's economic growth was slightly better than expected in the third quarter, although property investment fell more than 10% in the first nine months of the year. Retail sales and industrial production picked up in September.
• Officials addressing a press conference on Friday expressed confidence the economy can achieve the government's full-year growth target of around 5% and flagged another cut to banks' reserve ratio by the year-end.

(Source: Reuters)

• Global finance chiefs will gather in Washington this week amid intense uncertainty over wars in the Middle East and Europe, a flagging Chinese economy and worries that a coin-toss U.S. presidential election could ignite new trade battles and erode multilateral cooperation.
• However, the elephant in the meeting rooms will be the potential for a Nov. 5 election victory by U.S. Republican presidential candidate Donald Trump. Trump’s victory could upend the international economic system with massive new U.S. tariffs and borrowing and a shift away from climate cooperation. S. Vice President Kamala Harris, the Democratic presidential candidate, is largely expected to continue the Biden administration's resumption of multilateral cooperation on climate, tax and debt relief issues if she wins next month's vote.
• Growing anti-China trade sentiment and industrial policy plans from wealthy countries, punctuated by the Biden administration's steep tariff increases on Chinese electric vehicles, semiconductors and solar products, are expected to be a key discussion topic at the meetings.
• While debt defaults among poor countries may have peaked, participants at the annual meetings are expected to discuss the growing problem of scarce liquidity that is forcing some emerging markets saddled with high debt service costs to delay development investments as overseas aid shrinks.
• Support for Ukraine will also be a major topic at the meetings, as the G7 wealth democracies aim to reach a political agreement by the end of October for a $50Bn loan for the Eastern European country backed by frozen Russian sovereign assets. The loan in part is seen as a financial bulwark against a Trump victory next month, as the former U.S. president has threatened to "get out of Ukraine."

(Source: Reuters)