ewart s williams : investment strategies in an uncertain world address by mr ewart s williams, governor of the central bank of trinidad and tobago, at the business insight caribbean investor conference, port - of - spain, 1 december 2006. * * * good afternoon, ladies and gentlemen. let me first thank the organizers, business insight limited, for inviting me to this very interesting conference which focuses on “ investment strategies in an uncertain world ”. the media release couple days ago observed that the conference was prompted by the significant declines experienced in the stock markets of trinidad and tobago, jamaica and barbados over the last two years and noted that investors and market practitioners were looking for answers. i saw from the programme that there was a discussion this morning on the evolution of the market in trinidad and tobago and it may well be that you have already solved the problem. i hope it is not too late to give my take on the matter and discuss some options, which in my view, could ease some of the current pension funds restrictions while maintaining prudential standards to protect the workers ’ savings. let me first give the background to the current issue. since its inception in 1981 there has been little growth in the number of companies listed on the trinidad and tobago stock exchange. in 1981 there were thirty - five listed companies with a total market capitalization of $ 2. 3 billion. twenty - five years later, there are thirty - two listed companies with a market capitalization of approximately $ 110 million. it is estimated that institutional investors ( largely pension funds ) account for about ninety percent of total demand in a market in which only about twenty - two percent of shares are actively traded – the remainder having been bought to hold. since it was established in 1981, the value of stock market capitalization in trinidad and tobago has grown by over 50 times and much of the increase has taken place since 2002. in that year market capitalization was $ 48 billion and this grew to a peak $ 120 billion in mid 2005 before falling to $ 107 billion at end of 2005. since then market capitalization has declined by a further 18 percent. when the imf conducted its financial sector review in mid - 2005, prior to the slide in the market, it observed that, “ the sharp increase in stock market capitalization was not reflected in earnings ”. from a sample of 13 firms, representing some 60 percent of market capitalization, stock prices between 2001 and mid - 2005 rose 1. 5 times while earnings per share increased 0. 5

take into account the plan ’ s liability profile, funding level and the risk tolerance of the plan ’ s sponsor – in terms of the sponsor ’ s willingness and ability to increase contributions if the investment policy does not deliver. such a policy would then be based on input from the trustee, sponsor, management committee and actuary. while this is attractive in principle, there are practical issues. for example, if there are no limits on local equity purchases in a small stock market like trinidad and tobago, the imbalance between demand and supply of equities could push prices beyond levels justified by the fundamentals ( as has happened hare over the last few years ). a second practical issue is whether there should be limits on foreign investments. the current thinking in industrialized countries is that the absence of limits on international investments allows for superior performance in terms of risk and return. in a small developing country like trinidad and tobago, there are practical considerations of the effect that unfettered overseas investment would have on exchange markets and the exchange rates. whatever investment regime is finally decided upon for the long term, its efficiency and sustainability will ultimately depend on ( i ) a significant increase in the range of available domestic investments ( including government securities and private bonds ) ; increasing liquidity in the stock market by encouraging more listings providing inducements for trading as opposed to the current system of “ buy and hold ” and reducing the dependence of the stock market on institutional investors. these are tough but winnable challenges. the bank will continue to discuss these issues with stakeholders with a view to agreeing on a temporary investment regime early in the new year.