Month: May 2018

Wells Fargo and Company may have to fork over $1 billion in settlement to regulators in order to resolve an investigation with regards to the sale of some of its auto insurance and mortgage products. The Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency were preparing the hefty fine on Monday.

This is not the first regulatory issue Wells Fargo has had to deal with in just under two years. In 2016, there was an investigation into branch employees who had opened millions of accounts without the knowledge of customers. The Federal Reserve has already imposed sanctions on Wells Fargo for failing to have sufficient risk controls to detect these issues. One such sanction is the restriction on the growth of the banks balance sheet beyond 2017 levels of $1.95 trillion, until measures are implemented to address the bank’s board and risk management. The restrictions will significantly affect the company’s annual profit by more than half to US$300 million. Mishaps such as these, reduces customer’s trust and confidence in the bank and its sales tactics in various departments such as auto insurance, wealth management and mortgage.

Despite the developments, the bank reported a 5.5 percent increase in profit for the first quarter of 2018, with net income of US$5.9 billion or US$1.12 per share, compared to US$5.6 billion for the same period in 2017 or US$1.03 per share. Revenue, however, fell by 2 per cent to US$21.9 billion from US$22.3 billion. Average deposits decreased by US$2 billion to US$1.3 trillion while average loans decreased by US$12.6 billion or 1 per cent to US$9.51 billion.

These results may however need to be revised to reflect the final settlement from regulators. Many may argue that  US$1 billion fine may not have a significant impact on the company’s balance sheet but there is no doubt that it may take some time for the bank to repair its bruised reputation. This is evident in its shares which have already fallen to US$50.89, down 3.4 percent after trading on Friday.

Wells Fargo has already taken measures to prevent these unfortunate occurrences by revamping its operational structure. The bank made changes to its board and hired a new compliance officer.

Wells Fargo may be having a hard time now, but the company is known for making profit and appeasing its customers and that is why we at SSL continue to recommend this stock to our clients.

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Main Event Entertainment Group Limited [JSE: MEEG] at its first annual general meeting since listing announced the creation of a new division called the M-Style which will aim to provide seating and equipment for events such as weddings, conferences and birthday.

With this new initiative M-Style, Main Events will see a decrease in the number of third-party contractors it usually needs for the proper execution of its events.  Complementing the company’s entertainment and marketing function by creating a new “experience” as stated by CEO Solomon Sharpe.

Furthermore, M-Style is already in full operation but, yet to be formally launched. Sharpe stated, “Previously, Main Event could not have necessarily played in the wedding market,” because the company was unable to provide that type of décor to create the “elegant” seating to cater to such events.

MEEG projects an investment of 100-150 million in equipment for 2018 which would aid in the expansion of their offerings and internal resource which is a significant part of the company’s strategy to offer a full-service solution to existing and prospective clients across the region.

The Company achieved record revenue of $1.18 billion as at the end of 2017 financial year, an increase of 4.42 percent comparing to $1.13 billion in 2016. Operating profit rose to over 80 percent at $108 Million in 2017 compared to $59.8 Million a year earlier. The net profit margin increased in the same period by 78.85 percent to $101.047 Million from $56.499 Million.

Moreover, Main Event has started 2018 with a good momentum having aided with the execution of major events such as Inter-Secondary School Sports Association (ISSA) Boys and Girls Championships and ‘soca’ parties including the Carnival road march.

Currently, Main Event Entertainment Group Limited is trading at a price of JMD 6.19, and we at SSL recommend a definite buy for this stock.

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Sanctions by the U.S. on Russian businesses and officials, had a negative impact on the Russian rouble as it fell by more than 4 percent against the dollar this week.

Investors lost their confidence and sold their assets as they feared more sanctions could be imposed which would increase market risk.  The sanctions imposed were narrowed down to two reasons:

The first being the U.S.’ response to allegations that Russia interfered in the 2016 U.S election. The other being another allegation that the Russians are responsible for the poisoning of Russian ex-spy, Sergei Skripal and his daughter.

If the U.S. keeps targeting Russia, then this may pose a political issue for Russia, whose President, Vladimir Putin, was recently re-elected. The Russian economy is in a state of recovery, and these sanctions may worsen the issue as the Russian government will have to spend money budgeted for other tasks, to bail out sanctioned Russian companies.

However, Russia is optimistic this current rouble depreciation is temporary. Even Russian businesses are refuting the claim that a decrease in the value of the rouble has affected operations.

Russia is preparing to act if there are risks to the country’s fiscal stability. One such response would be to resume foreign currency repo operations if necessary. Consideration will even be given to possible retaliation against the U.S.

After a 1.5 percent increase in the Russian economy in 2017, a floating rouble rate could have an adverse effect on the Russian economy which was projected to grow by 2 per cent in 2018.

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Microfinance Company, ISP Finance Services Limited, has blamed the appreciation of the Jamaican dollar against foreign currencies for the decline in foreign exchange gains in the company. Foreign exchange earnings decreased by $5.83 million in 2017 totaling a meagre $934,543 compared to $6.76 million in 2016.

On a more positive note, ISP Finance reported $261.95 million dollar in revenue for 2017 compared to $219.70 million dollar in 2016; a 19.2 percent increase. Year over year profit increased by 24.4 percent, $49.99 million in 2017 compared to $40.24 million in the previous year.

In a bid to grow its client base, ISP now plans to expand the company outside of the Kingston Metropolitan Area to include branches in other densely populated towns across the island. The company also plans to introduce new loan products customized to its clients’ needs. Additionally, plans will be implemented to improve technology in order to enhance service delivery.

Currently, ISP focuses mainly on the disbursement of loans to employed persons and to small and micro-businesses, which require short-term financing at competitive rates. ISP describes the loan requirement process as simple and their service delivery as prompt.

ISP Finance Services Limited was listed on the Jamaica Stock Exchange (JSE) in 2016 and immediately saw an increase in the company’s net profit to $40.24 million. The company currently trades on the JSE at $15.00.

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The government of Papua New Guinea has announced that it will block Facebook for a month to sift out fake profiles, users who post pornography and assess the effect of Facebook on the population. Communication Minister of Papua New Guinea, Sam Basil, stated that online criminals are abusing the social media site with fake identities and the ban will allow the country to enforce the Cyber Crime Act passed in 2016.

Whilst researchers will be analyzing how Facebook is used in the country, the government will be exploring other options of its own social network for its citizens. Basil stated the ban could reveal the conclusion that people do not really need Facebook and are actually ‘better off without it.’

The date for the ban has not yet been revealed but it comes at a time when Facebook is facing extreme pressure from governments around the world. Recently, Mark Zuckerberg who acts as CEO of Facebook, had to endure grilling questions from the U.S. Senate over the misuse of data and privacy concerns involving data mining consultant firm, Cambridge Analytica Limited.

Zuckerberg was again questioned by members of the European Parliament in Brussels, last week, because of data privacy concerns. Earlier this year, the government of Sri Lanka moved to ban the social media site for one week accusing it of fueling ‘sectarian violence in the country.’ In the past, countries like: China, Iran, North Korea, Pakistan, Bangladesh and Vietnam have temporarily blocked Facebook from its populace.

Since news of the impending ban in Papua New Guinea emerged, Facebook has since reached out to the government in order to get a better understanding of their concerns.

Could Facebook’s stock price be affected by the Papua New Guinea ban?

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Premier importer and distributor of fruits, vegetables, dairy and other food products, Everything Fresh Limited, is listing on the Jamaica Stock Exchange. The offer opened today May 17 and will close on May 24, 2018. Stocks and Securities
Limited (SSL) is the lead broker for the IPO.

Everything Fresh & SSL together hosted prospective investors at the Audi Terminal on Wednesday May 9,2018 where Everything Fresh showed off their premium quality dairy, seafood, meat and produce products. Guests were treated to an exhilarating evening of figures and delectable treats curated by ace chefs Oji Jaja of Ashebre & Christina Simonitsch of Simo’s Bread and Catering’s.

The evening’s formalities included a breakdown of Everything Fresh Limited’s growth prospects from SSL’s Investment Banking Associate Matthew Williams, after which, Chairman of Everything Fresh Gregory Pullen illustrated his company’s journey from a small family owned entity to now, being a multi-billion dollar enterprise poised for expansion. Lamar Harris, Chief Executive Officer at SSL emphasized the contributions the company intends to make to brand Jamaica and the Jamaican market.

Everything Fresh Limited seeks to raise J$390 million from the share offer. They will seek to hit the $4 billion mark in sales by December 2020 – roughly doubling sales from $1.8 billion in December 2018. The influx of cash from the IPO will enable the Company to take on more large clients which will increase sales. Additionally, economies of scale as they grow will allow them to improve on their margins. The Company has a goal of attaining net margins of 7%-10%.

Courtney Pullen, Managing Director of Everything Fresh, expressed his confidence in the share offer. “We have a goal of increasing our business capacity by retaining and even improving our service to our customers, which is our hallmark.”
The firm, which currently supplies Riu Hotels and Resorts, Iberostar Hotels and Resorts, Hi-Lo Food Stores, Progressive Grocers, and Secret Resorts & Spas, will continue expansion in the grocery and tourism industries. Expansion will be achieved through increased working capital to support operations, introducing several new product lines, establishing a local meat processing facility, and, moving towards regional expansion in the Caribbean. The Company’s eye for the tourism market comes at a time when there is increased investment in tourism development from the public and private sector, making Everything Fresh primed for success as they increase capacity to deliver more products. Additionally, the Company plans to install a solar system that will assist in reducing its carbon footprint and reduce energy costs for more cost-efficient operations.

Speaking for SSL, Mark Croskery, Executive Director, SSL (Barbados) Ltd. said his confidence in the Everything Fresh IPO was based on “the tremendous track record of excellent service and professionalism on which the company has built its reputation.”
Everything Fresh will make a total of 156 million shares available, including 26.3 million shares being offered at the subscription price of J$2.50 per unit. Just about 129.7million is being initially reserved for priority application from, and subscription by, employees of the company (excluding executive directors), companies and persons that have done business with Everything Fresh on a continuous basis and whom the company considers critical to its business. Portions will also be reserved for the lead broker, as well as for employees and key clients of the lead broker.

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Fosrich Company Limited [JSE: FOSRICH] lights the way again with bright first quarter results for the period ending 31st March 2018. The company for the first time delivered a whopping JMD$30.8 million compared to JMD$15.6 million in the prior period. Moreover, this was aided by other income benefiting from foreign exchange gains.

Fosrich recorded revenues of JMD$271.8 million for its first quarter since listing, recording a decrease of 7.71 percent  when compared to the same quarter in 2017. Furthermore, this decrease in revenue was beyond the company’s control as product prices have seen some downward movements in international markets.

The Company saw a sharp increase in its net profit of 103.97 percent and an increase in its net profit margin 24.1 percent when compared to the prior year of 5.15 percent. This was aided by a gain of JMD$7.8 million from foreign exchange and benefits of tax exemption from listing on the Junior Stock Exchange.

Furthermore, the company has displayed noteworthy financial management year-to-date having cut expenses by 9.61 percent from JMD$118.6 million to JMD$107.2 million. In addition, Fosrich increased its Return on Assets (ROA) by more than 50 percent in quarter one (Q1) of 2.27 percent compared to 1.38 percent in the prior quarter.

Similarly, the company increased its Return on Equity (ROE) to 4.81 percent when compared to 3.66 percent in the prior quarter. Also, the company has deceased is Debt/Equity ratio to 0.5x from 1.6x in the prior quarter compared to 1.1x in Q1, as a result of the increase in Shareholders Equity of 5.1 percent. However, non-current liabilities have increased by JMD$274 million due to the company obtaining a new line of credit to assist with the financing of operations.

In addition, Fosrich reported a strong growth in its cash and cash equivalents for Q1 of 468.24 percent, as a result of listing on the JSE. Currently Fosrich has a Price/Earning (P/E) of 14.43x.

Fosrich is a distributor of lighting, electrical and solar energy products, partnering with global lighting companies such as Philips Lighting, Siemens and General Electric (GE) to name a few. Moreover, the Lighting industry is viable one with the increasing demand for efficiency and reducing cost of electricity through energy saving products. We at SSL strongly recommend Fosrich as a buy.

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A few weeks ago, 21st Century Fox announced its intentions to buy the remaining 61 percent of Sky it does not own. To add another layer to the media takeover, it was reported that Disney could possibly acquire 21st Century Fox which could result in Sky News ultimately being controlled by Disney, but the deal is yet to be approved by U.S. Regulators.

Fox is now faces regulatory pushback from the Competition and Markets Authority (CMA) in the UK. The CMA feels the proposed takeover of Sky is not in the interest of the public as the deal poses a real threat to media plurality. Fox currently owns 39 percent of Sky as well as newspapers in the UK including the Sun, the Times and the Sunday Times.

If this media takeover is completed, it is argued that the Murdoch family, who currently owns 21st Century Fox and all its businesses, would be given too much control over news in the country. If the Murdoch family has control across all media platforms in the UK, this would threaten the diversity of views that make up a healthy media landscape and give them the opportunity to have too much influence over public opinion and also an avenue to push their political agenda.

Based on the concerns of the CMA, Fox has already proposed solutions. Fox wants to make Sky News a distinct company within Sky, having an independent board.

But to what extent will the board be independent?

Rupert Murdoch and his son Lachlan Murdoch are already the Executive Chairmen of Sky. Additionally, the head of Sky would still be appointed by the head of 21st Century Fox; who would evidently have influence over editorial decisions.

In the end, if Fox acquires the outstanding shares of Sky and Disney acquires Fox, the end result will likely be similar. The threat to media plurality may very well come from Disney.

We will be closely watching the developments around these acquisitions and the effects it may have on the stock market.

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Since the presence of international entity, China Harbour Engineering Company (CHEC) in Jamaica, many residents are of the view that Jamaica’s government is slowly selling sections of the island to the Asian nation. It should be noted that CHEC has contributed invaluable infrastructure, through their work in developing the new North South Highway which has significantly reduced the travel time for residents driving to and from the south to the north coast.

Along with this development, Jamaica also has profited from increased employment in different departments that has resulted in consumption of local goods and services. Additionally, the company has embarked on projects to upgrade existing roads, alleviating perennial traffic issues plaguing drivers.

The most recent investment out of China is the establishment of Shacman’s regional headquarters. The heavy-duty truck company recently signed a deal with Tank Weld (TW) to distribute its trucks in Jamaica, where they will be setting up offices in Six Miles, St Andrew, close to Tank Weld’s main offices by the end of April, according to a recent news release. The deal is set to bring permanent employment to residents and offer an after service to customers who purchase Shacman trucks. Tank Weld has partnered with Jamaica National Bank to provide loans to small haulage contractors so that they can be in a position to purchase trucks from the company. The ripple effect throughout the economy should be significant, as this is a boost across different sectors.

The fact is that no one can confirm or deny the rumours behind China’s interest in Jamaica but the fact is we have seen changes and improvements in infrastructure that would not be possible using strictly local resources. CHEC has been a driving force in our economy creating job opportunities for individuals and increased foreign exchange through frequent travels to and from China.

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Major pharmaceutical company, Pfizer [NYSE: PFE], is seeking another miracle pill with similar earning potential as Viagra to boost revenue. Viagra, a brand name popular pill among men, is used to treat erectile dysfunction. However, it now faces heavy competition from the generic version of the drug, Sildenafil which is sold by the same company.

Back in 2000, 92 percent of the global market who used prescribed erectile dysfunction pills, chose Viagra. But that number has dwindled to 50 percent by 2007. In 2017, Pfizer lost the patent for Viagra, resulting in a lack of  growth for the company. Pfizer is now seeking to create another miracle pill, however its efforts may be limited as the company recently announced cost cutting plans in Research and Development.

Pfizer plans to spend between USD$7.4 billion to US$7.9 billion in Research and Development when compared to USD$7.7 billion spent last year. Pfizer is facing competition from companies such as Johnson and Johnson and Merck, who are projected to spend USD$10 billion in that field.

Pfizer does not seem to be in good financial standing as evidenced in the 300 jobs that were cut in January. It has been reported that the company ended its research programs in the treatment of Alzheimer’s and Parkinson’s disease, to fund other projects. Pfizer also made it known that the company may sell its consumer healthcare business which owns over the counter drugs such as, Advil, Centrum multivitamin and Chapstick lip balm.

According to Tufts Center for the Study of Drug Development, it takes an average US$2.6 billion to bring a new drug on the market. That is considered a hefty sum as in 20 years there have been 19 treatments that have generated US$1 billion in annual revenue for the last 5 years. Because of this, Pfizer chose a model where it shares the risk and benefits with other companies such as Merck and Bristol Myers Squibb.

Pfizer has had other profitable drugs such as Lipitor for cholesterol, Zoloft which is an antidepressant and Celebrex an anti- inflammatory drug, but none has matched the selling power of Viagra.

In 2017, Pfizer made revenue of US$52.5 billion compared to US$52.8 made in 2016, a less than 1 percent decrease. Net income on the other hand, did not disappoint as the company amassed US$21.3 billion in 2017 compared to US$7.2 billion in 2016. Pfizer trades on the New York Stock Exchange at US$35.73.

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Lasco Distributors Limited [JSE: LASD] have been experiencing tremendous business performance recently. So much so, that they have decided to pay out an interim dividend amounting to $406.35 million to their shareholders. An interim dividend is a distribution to shareholders that has been both declared and paid before a company has determined its full-year earnings. Such dividends are frequently distributed to the holders of a company’s common stock on either a quarterly or semi-annual basis. The shares will be approximately $0.12 per share and paid out on April 30, 2018. Not only have they experienced improved company performance, Lasco Distributors has been receiving funds through their ongoing court case with Pfizer. The American drug manufacturers paid a out a multimillion dollar lawsuit when Justice Vivienne Harris awarded special damages of USD$77,075 (just over JMD$5.32 million), to Medimpex (using the 2007 exchange rate of $69.06 to 1) and $155,738 to Lasco Distributors.

Lasco has also completed most of their planned major capital projects, such as the warehouse expansion and the upgrading of their business application software. Both of which has increased business efficiency and enabled the company to experience savings due to decreased operational costs. With their continual plans to improve software systems, Lasco is poised to further maximize on cost-savings and operational efficiency. This can raise the value of their stock, and then provide increased dividends for present shareholders. Lasco has set quite a precedence for other local public companies to follow. With the gradual advancements of technology, more specifically software systems, Jamaican companies have a greater capacity for business improvements. If other companies follow in Lasco’s footsteps, then we can expect greater returns in the future, along with a highly competitive market.

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The stock price of Spotify has increased  by 12 percent at the close of trading, there is still some amount of doubt surrounding the success of the stock. SPOT was directly listed on the NYSE with a reference price of USD$132.00 but once trading started it quickly jumped to USD$165.90. However, the price fell and closed in its most recent trading session at US$149.01. The company is now worth around USD$26 billion, more than the value of Twitter.

The decrease in stock price is attributed to investors’ lack of confidence in the company’s business model. Spotify had no intentions of raising capital with this IPO and that is why the company opted to directly list the stock on the NYSE so shareholders can sell shares directly to the public instead of using an intermediary. This worked in Spotify’s favour as they did not have to pay hefty fees from investment banks.

Currently Spotify has an estimated 70 million paying subscribers and almost 90 million free listeners, however, the company is yet to turn a profit. The music streaming giant earns an estimated US$5 billion a year in revenue but pays out more than three quarters of that amount in royalties to music labels, songwriters, artists and producers.

Competition in the online music streaming industry is strong but Spotify has been finding ways to increase revenue from not only through paid subscriptions and advertisements but from original content and podcasts. Many analysts have already casted doubts on Spotify’s viability even though the music industry needs music streaming companies like Spotify.

Music streaming can be transformed into a profitable platform but Spotify needs to diversify its core offerings to increase its paying subscribers. Not to mention the company needs to turn a profit as it is competing against companies such as Apple, Amazon, Google, among others, which use the music streaming business to support their core product.

Spotify has already disrupted the entertainment market with its debut and may very well change the way people stream music online. Would you take a chance on Spotify?

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Licensed ganja company, Kaya Inc, has announced that the entity will be releasing its IPO soon, which will be listed on the Toronto Stock Exchange (TSX) in Canada. Kaya also intends to do a ‘reverse takeover’ of Buzz Capital, a company already listed on the TSX. Buzz Capital was formed in 2017 and listed on the TSX that same year.

Kaya plans to raise CAD$8.5 million from the merge. CAD$5.5 million is hoped to come from institutional investors while CAD$3 million will be given by HIKU Brands, who has already committed to that agreement. The deal which should be completed by April 15, will see Kaya shareholders owning almost nine-tenths of Buzz Capital.

The takeover involves a series of transactions which includes Buzz reducing its ordinary shares by half from 8.2 million to 4.1 million units. After which, the company’s name will be changed to Kaya Inc. Following the name change will be an exchange of all issued and outstanding shares of Kaya for common shares of the resulting entity.

Subsequently, Kaya will warrant for shares of the new company. The resulting entity should have 43 million issued shares. Kaya shareholders will own 89 percent while Buzz shareholders will hold 11 percent.

Kaya made it clear that this transaction will be subjected to the oversight and approval of the Cannabis Licensing Authority in Jamaica. Kaya has announced that there will also be over 50 percent of Jamaican shareholders and Board Directors at all times.

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Do you remember ever following a family member to the wharf or having gone yourself, having to wait for hours to clear just one barrel? Better yet, have you been privy to the hefty service charges and customs fees you have to pay to clear a barrel of goods? If you have been among the unfortunate few, then Derrimon Trading [JSE: DTL] has a solution for you.

Derrimon Trading Company Limited seeks to make shopping and more importantly, the delivery of goods easier for Jamaicans. The company is hoping to get the attention of the Diaspora to use its services which will include an online shopping platform which will list ‘name brand’ items Jamaicans prefer. This method will save persons the hassle of packing barrels by reducing the sender’s labour to just clicks on a cell phone or laptop. The items will then be delivered within 48 hours.

Derrimon Trading will pack the ‘barrels’ from their warehouse; located on Marcus Garvey Drive, Kingston. The company started its online shopping quest with university students but admits the supermarket shopping online is not easy but they have figured out a way to complete the task.

But how will consumers be guaranteed that they are buying quality products?

CEO of Derrimon Trading, Derrick Cotterell, explained that it is in the best interest of the company to deliver quality goods. If not, then Derrimon will lose money as items returned will have to be disposed of.

Most business transactions in this generation are being done digitally and this venture is just one way in which Derrimon Trading is positioning itself to take part in the evolution.

For the financial year ending 2017, Derrimon Trading Company Limited made $6 billion in revenue and $281.7 million in net profit. A notable increase of 59.6 percent in revenue when compared to $953.9 million the company made in 2016. Net profit was also increased by a whopping 142.6 percent from $116.1 million.

The company has been doing well, and although we would not recommend adding the stock to your portfolio at the moment, we continue to monitor it carefully.

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China’s response in imposing $3 billion tariffs on U.S. imports was seen as rather ‘modest,’ but it should not have been taken lightly, as the Chinese government on Friday announced its intentions to play hardball. China intensified the trade war with news that they will be raising tariffs on 128 U.S. products coming into the country.

These products included fruits, wines, pork, nuts and recycled aluminum. This development has not only affected the S&P 500 Index in the U.S. but has taken a toll on the stock market in Japan and China. On Friday, Tokyo’s Nikkei fell by 4.5 percent and China’s Hang Seng by 2.5 percent.

While it is clear President Trump has no intentions of squashing this impending trade war, China is actually open to resolving the friction. Clearly, China is not afraid to retaliate, however the country is giving the U.S. opportunities to reconsider its position.

China plans to raise tariffs in two phases. The first being an increased 15 percent on tariffs for 120 goods worth almost $1 billion only if the U.S. does not want to reach a ‘trade compensation agreement’ within a particular period of time. The second being a 25 percent tariff imposed on eight products from the U.S. with a market value of almost $2 billion after there has been an evaluation of the impact of the tariffs.

The World Trade Organization (WTO) is urging both countries to rethink their decision and come to an amicable solution to settle their differences using mechanisms specified by the WTO.

The bigger issue with this impending trade war is the effect it will undoubtedly have on a global scale. Trades, not to mention economies, to as far as the Caribbean will be affected.

However, Trump sought to quell fears that the increased tariffs will be imposed on other countries. But anything is possible with President Trump. He describes China as a ‘friend’ to the US but is still targeting that one country.

How do you think this impending trade war may affect Jamaica’s economy?

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