6 months ago
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The value of equities on the Jamaica Stock Exchange rose just above $2 trillion at the end of the March quarter, with some market experts describing the period as one of quiet buying.
Overall, market capitalisation has risen by around $72 billion so far this year.
“The improvement is remarkable in spite of the increasing trend in interest rates,” said Dan Theoc, head of investment banking at Mayberry Investments.
Within the fixed income market, investors were earning around 9.5 per cent on their investments in April. Theoc said that some rates are now above 11 per cent, but some investors are still looking to buy into the equities market nonetheless.
Up to the end of March, the combined and main market indices were each showing growth over the quarter but only by 0.6 per cent.
“There’s no doubt in our mind that there will be a very strong rebound, perhaps in the fourth quarter, and many persons will be surprised at the performance,” said Theoc, in an interview with the Financial Gleaner regarding market prospects.
At the close of last year, the market value of stocks was just shy of $1.98 billion based on a summation of data published by the Jamaica Stock Exchange, but now it is at US$2.05 trillion.
Within the month of March there were two notable occurrences: the USD Market Index, which came into existence in year 2011, climbed above the US$1 billion mark for the first time due to the cross-listing of A.S. Bryden & Sons Holdings; and the JSE Junior Index lost more than $38 billion of value mainly due to the migration of two of the largest stocks, Lasco Manufacturing and Lasco Distributors, to the main market.
The JSE market has suffered four straight years of decline, which has frustrated some investors into exiting their investments at losses. But other investors are quietly buying stocks that are trading below previous highs with the expectation of future rises, according to Nicole Thompson Adamson, manager of research, business planning, and investor relations at VM Investments.
“Interest rates could drop towards the latter part of the year and persons are probably trying to position themselves for that move. With a sluggish market over the past few years, market players are itching for a turnaround,” said Thompson Adamson.
Investment consultant Herbert Hall says the current market uptick relates to company earnings.
“The movement we have witnessed in the market, while welcomed and being timely, seems more to do with news about the performance and expectations of certain listed companies, resulting in portfolio realignment by both institutional and retail investors,” said Hall, the founder of Ambassador Capital Partners Limited.
Currently, large companies on the JSE main market trade at a price equivalent to 14.5 times the profit per share they make. Junior market companies trade at an average price multiple of 16.5 times, according to broker data from Barita Investments to April 5.
Theoc of Mayberry said patient investors may reap rewards, especially with many blue-chip stocks currently priced “below 10 times earnings” within a market trading at 14.5 times earnings.
He added that discounted stocks are aplenty and that investors currently in the market would avoid the flood of funds shifting out of treasury bills back to stocks.
The pace of the shift depends on the fall in interest rates, he said. He expects the central bank’s policy rate, which is now at 7.0 per cent, to trend downward “certainly by the fourth quarter” of 2024.
In previous comments made by the JSE, the exchange indicated that it expects interest rates to fall in the short to medium term but thinks it will take time to filter through to the stock market. Its timeline for recovery is 2025, it said in previous discussions with the Financial Gleaner.
Over the past five years, institutional investors, led by pension funds, have shifted away from stocks, which now account for 20 per cent of their investment portfolios, down from 26 per cent in 2019, according to Financial Services Commission data. The bulk of funds have been put towards unit trust-type investments, which went from one-third of portfolios to 40 per cent. Unit trusts tend to have fixed-income investments underlying their returns.
“It is easy for them to be fat and lazy, however, that will change substantially in the coming months in our view,” said Theoc, about pension funds investment strategy.
Pension funds assets under management were estimated at $722 billion up to September 2023, according to the latest data from the FSC.
The market has recovered from the dramatic declined to $625 billion experienced at the start of the pandemic in March 2020, amid a substantial hit to capital markets in general.
As for stock market’s current performance, the migration of the Lasco stocks caused junior market capitalisation to fall from $186 billion in February to $149 billion in March; while the main market experienced a slight dip during the period by $5.4 billion or 0.3 per cent to hold at $1.73 trillion, despite the addition of the two Lasco companies.
In Jamaican dollar terms, the US-denominated index eclipsed the junior market in March, with a value that translated to $169 billion (US$1.09 billion). The cross-listing of A.S. Bryden was the primary contributor to the additional US$295 million of value for that index.
A.S. Bryden, which is a century-old Trinidadian company that was acquired by Seprod in 2022, was listed on the Jamaican dollar side of the JSE main market last November, while the cross-listing was effected four months later. As of Friday, A.S. Bryden was valued at US$312.5 million on the USD market and $54.8 billion on the JMD market.
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