JPMorgan Cuts Jamaica Bonds Exposure

JPMorgan has cut exposure to Jamaica’s bonds following outperformance and amid credit deterioration. “Jamaica’s global bonds (+6.3%) have outperformed the CACI (+4.4%) year-to-date, and we now move to underweight from marketweight by selling 0.5m of the ’39s amid the persistent deterioration in macro fundamentals and downward ratings pressure,” says the shop. “If capital controls are introduced it could adversely impact market perception of the credit and limit local sponsorship of USD bonds,” it adds. JPMorgan expects the Jamaican economy to contract, with real GDP dropping 2.0% in 2009 following a projected 0.5% contraction in 2008. It is undermined by US recession, falling demand for exports – especially alumina and bauxite – collapsing tourism, and slowing remittance flows. Net international reserves fell $112m to $1.76bn in 2008, covering only 10.6 weeks of estimated goods and services imports in FY2008/09, says JPMorgan. “The decline in reserves was the result of heavy FX intervention by the BOJ to defend the Jamaican dollar, which has been under pressure since October on a combination of general risk aversion and margin calls on domestic financial institutions by overseas counterparties,” it adds. “The government is now reportedly mulling the possibility of imposing capital controls to check the JMD’s slide.” However, ample financial support from multilaterals should allow Jamaica to meet a EUR200m bullet payment on Global 2009s maturing this week, JPMorgan concludes.