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Stock market falls below COVID low

Jamaican stocks sank to new depths last week, pushing the market beyond its lowest point during the height of the coronavirus pandemic.

It’s the second time it’s done so since this year.

Investors are shifting funds towards fixed-income investments as money market yields have nearly tripled from three per cent in 2020 to 8.5 per cent at present, dragged along by the central bank’s policy rate hikes that have been paused at 7.0 per cent.

“Institutional investors are able to find relatively attractive returns on money market securities which will take some attention away from the equities market,” said Greig Lindo, assistant general manager for trading and treasury at JMMB Group.

The combined market first dipped below the pandemic low back in March, but then climbed back out of the hole by the end of that month. Since then, however, stock prices have been meandering. Last week, they dropped back again below the pandemic low.

The lowest point reached by the JSE Combined Index during the COVID-19 crisis, which occurred during the early days of the pandemic, was 337,500 points on March 25, 2020.

But on March 23 of this year, it hit a fresh low of 332,573 points, then spiked back to 352,488 points on March 31, but couldn’t sustain the momentum.

On Friday, the JSE Combined Index closed at 334,233 points, down 9.3 per cent year to date.

Lindo expects the Bank of Jamaica, BOJ, to keep the monetary environment tight for the remainder of the year, as a means of keeping inflation down. This means the “headwinds for equities” will likely remain, he said.

Annual inflation in July 2023 was 6.6 per cent, which is just outside the 4.0 to 6.0 per cent target band. That said, inflation has been tamed from the high of 11.8 per cent recorded in April 2022. It’s fuelling optimism that the central bank won’t execute another interest rate hike beyond, a tool it had been using to cool down prices.

Lindo expects new stock listings via initial public offerings to somewhat stir the appetite of investors. An IPO is set to open this month-end for a digital marketing firm, One Great Studio. It will become the third listing this year emanating from IPO transactions, the others being junior stock Image Plus/Apex Radiology and the Mayberry Investments bond.

Last week, Managing Director of the Jamaica Stock Exchange Marlene Street Forrest said that over time the market will recover and that investors should avoid the herd mentality and invest now when prices are discounted.

The JSE Group in its newly released financial report added that interest rate declines are important in spurring activity.

“We anticipate that as interest rates trend down and other market turbulence subsides, investors and companies will be more active in the market, which will result in improved performance,” the JSE said.

The sting of the market decline occurred while interest rates were rising to their highest levels in a decade.

The private money market rates are at 8.5 per cent, according to data from the Bank of Jamaica, but they went as high as 9.7 per cent in January. The last time rates performed at that level was back in July 2014. They had been even higher in January of that same year, at 13 per cent.

The higher interest rates have escalated the inherent risks associated with equities, resulting in more funds being pumped into fixed income.

The latest data to March 2023 from the Financial Services Commission, shows that the size of repo liabilities, which comprises fixed income securities, grew 18.6 per cent to $606 billion from $511 billion a year earlier. The increase came amid a 10.3 per cent drop in the funds under management at these firms from $1.7 trillion to $1.5 trillion in the same period.

The JSE’s market capitalisation stands at $1.95 trillion, which remains on par with the value of stocks prior to the pandemic. That was because the fall in the market cap or value of individual stocks was balanced by a series of new listings that pumped fresh capital into the market.

Amid the decline, several stocks are still profitable, but are trading at a fraction of their pre-COVID prices. The most notable is NCB Financial Group, which at one point accounted for nearly one-quarter of the value of the JSE market capitalisation. The banking conglomerate maintained its profitability over the period, but its stock price dipped by three-quarters from $230 to the current $70 range.

The JSE currently ranks as the 14th worst-performing stock exchange among some 90 markets across the globe, according to daily updated tables from online database Countryeconomy, which are cross-referenced with the Tradeconomics database.

Zimbabwe, Venezuela and Argentina are the world’s best-performing exchanges with gains of 715 per cent, 400 per cent and 340 per cent, respectively, in the year. These countries were affected by higher-than-normal inflation during the year. The worst performers were markets in Nairobi, Uganda and Qatar, down 30 per cent, 26 and 24.6 per cent, respectively.

In 2015 and 2018, the JSE was designated the best-performing stock market, globally. The Jamaican stock market’s decline began in late 2019, but was exacerbated with the advent of the COVID-19 virus in Jamaica in March 2020 and then worsened by geopolitical and economic events.

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