The funds under management by Jamaican investment companies declined by $55 billion within a year, amid falling asset prices and inflation that has eroded real returns for investors.
Additionally, securities dealers have seen a decline in their levels of capital amid global market volatility, according to new data published by the Financial Services Commission, FSC, via its monthly Invested newsletter.
“Revaluation losses contributed to the fall in the capital base,” the newsletter stated.
Contributing to the dip in funds under management or FUMs was the fall in stock prices and bond prices.
“The reporting quarter [came] against the backdrop of high inflation, driven by soaring energy and food prices, supply chain disruptions and the adverse effects of the ongoing Russia-Ukraine war,” the FSC stated. “The elevated inflationary pressure has led the BOJ, like other central banks across the globe, to adopt a hawkish stance on its monetary policy.”
Data from 37 firms regulated by the FSC showed a 17 per cent dip in capital from from $149 billion to $124 billion as of September 2022.
Clients place the funds with securities firms in instruments such as units trust, mutual funds or other securities such as stocks and bonds. The FUMs across the securities market fell to $1.58 trillion as at September 2022 from $1.64 trillion in 2021, a $55 billion or 3.4 per cent decline.
Relative to the apex pandemic year, 2020, however, FUMs still outpace the $1.34 trillion lows seen at that time.
The decline in FUMs arose “from a contraction primarily in balance sheet positions”, said the FSC, further indicating that asset values dipped in the period.
The FSC also noted that there was a shift of unit trust investments and other collective investment schemes towards real estate investments, pushing up the latter by 21 per cent. There were also shifts away from stocks, down 10 per cent, and fixed income investments, which fell by 12 per cent.
The FSC newsletter also made note of the fact that worldwide, a significant rise in financial fraud had been detected since the pandemic. Jamaica is currently grappling with one such scandal in which $3 billion is alleged to have gone missing at investment company Stocks and Securities Limited.
“The COVID-19 period featured high levels of market volatility, an upward trend in self-directed investing, an increase in gamification of investing and growing investor reliance on social media for advice, as well as a surge in frauds and scams in a context of increased retail investor participation,” the FSC said, quoting the latest public report from the International Organisation of Securities Commissions.
The November 2022 IOSCO report seen by the Financial Gleaner added that two-thirds of its membership had noted rises in fraud.
“The search for high returns may have also led some investors on a path to fraudulent investments. Simultaneously, it is likely that fraudsters saw the influx of new and potentially naive investors, some of whom may have been socially isolated, as very attractive targets. Nearly 66 per cent of regulators reported an increase in financial fraud and exploitation, and many regulators saw an increase in investor complaints,” stated the IOSCO report.
The SSL case has led to the resignation of the executive director of the FSC, Everton McFarlane, and will eventually result in the FSC itself being stripped of its regulatory functions.