Wed | Dec 7, 2016

Market watchers predicting new stock market boom

Published:Friday | April 24, 2015 | 12:00 AMNeville Graham
A section of the Jamaica Stock Exchange, Harbour Street, Kingston.
The Jamaica Stock Exchange at Harbour Street, Kingston.
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Market watchers are predicting an upswing in the Jamaican stock market, one of whom says equities are likely to double in value within 18 to 24 months.

Pension fund manager Rezworth Burchenson, investment CEO Gary Peart and financial analyst Keith Collister all agree that, given present conditions, investing in the stock market is the best game in town, at the latest Mayberry Monthly Investor Forum on Wednesday.

Burchenson, who is managing director of Prime Asset Management Limited, said he views equities as the best asset class at the moment. He said over the medium to long term, equities have managed to outperform fixed-income instruments and even the foreign exchange market. But he is also urging caution against what he calls 'herd behaviour'.

Investors should adopt a portfolio approach to their investments, to include a mix of instruments along with equities to guard against market fluctuations.

Burchenson feels that now is the right time to enter the equities market, saying there are real benefits to be gained.

Jamaican stocks have been on an upward trajectory since the beginning of the year after losing 5.31 per cent of value in 2014.

Year to date, the main market has gained 13.5 per cent. The index hit a 52-week high of 87,400 on April 21 before a slight correction the next day. The JSE Main Index closed at 86,646 on Thursday.

Gary Peart, the CEO of Mayberry Investments Limited, recalled that the last time the market shot up significantly was in 2004, having started to climb in 2002.

"At the point just before the market took off, the P/E for a select set of blue-chip stocks was just about nine times. When the stocks reached the ceiling in 2004 it peaked out at about 17 times," Peart said.

He said the stock market is again showing the same tendency with a potential for growth, only this time it is starting from a lower base. Peart said presently P/E ratios average 4.5 times, which effectively tells the investor that many stocks are undervalued and are likely to appreciate in price in the near term.

"What it is saying is that everything is shaping up for a replication of what happened in 2004. The extent of it, obviously, is how excited people get but the big difference is that it moved from nine times to 16 times at the peak in 2004. We'll be starting from four and a half times this time around," he said.

He added a caveat, however, that predictions will hold true if the present macroeconomic indicators - inflation, interest rates, net international reserves - remain strong.

Collister said his reading of all the macroeconomic indicators suggest that the best place to invest at this time would be stocks.

He reminded the forum that he had predicted the market boom of 2004, saying there is every indication that the market will double once again.

However, Collister cautioned against rushing to buy just any stock, saying investors should seek advice on their purchases.

The Jamaican stock market is currently the repository of some $370 billion of wealth, which trades across the Jamaica Stock Exchange's main, junior and USD markets.

neville.graham@gleanerjm.com