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Experts say stock market to continue bull run

Published:Sunday | November 1, 2015 | 11:00 AMNeville Graham
Publisher and Financial Analyst, John Jackson.

The bull run of the Jamaican stock market, which started in September, is expected to continue and even accelerate according to market experts.

Financial analyst John Jackson and Mayberry Investments CEO Gary Peart agree that conditions in the Jamaican economy are feeding into stock-market activity, citing a correlation between falling interest rates and a rise in stock prices.

Speaking at the Mayberry Monthly Investor Forum Thursday, Jackson said investors have been quietly snapping up some good deals and reaping big payoffs, and he expects the trend to continue on expectations that interest rates will continue to fall.

Benchmark interest rate was adjusted by the Bank of Jamaica twice this year and is now at 5.25 per cent.

Jackson also raised the upcoming $62 billion repayment of NDX bonds next February, saying the stock market is likely to benefit, as investors would be looking for opportunities to reinvest.

"There are a number of factors that we find ourselves with right now. We have an election that is pending, we have lower interest rates, we have lower oil prices and prices are expected to remain low for a protracted period of time, we have companies reporting super profit," the financial analyst said.

The stock market index is currently performing at record levels. The main index closed at 131,284 points on Friday, while the combined closed at 135,783 points.

"We're in a virtuous circle of good news at the moment, and that is gradually feeding itself into stocks. Clearly, we have a boom and we have not yet reached the peak," Jackson declared.

The one limiting factor for growth is the chronic supply shortage of some stocks, he adds.

 

increasing PE ratio

Jackson strengthened his argument for further growth in the stock market by an examination of the increase in the average price to earning ratios (PE).

"In May the average PE ratio of the market was six with a few of them at seven. That has now had to be changed. There are many stocks in the market with PE averaging 10.5," he said.

He also traced a similar development on the junior market where PE growth has been averaging 7.3 with the top stocks running at 10. The analyst is predicting that the growth will come from those stocks that are presently trading at low PE ratios, saying there are 20 stocks with PE ratios below 5.8.

Peart said the market has historically traded with a high average PE ratio of 16 and, as such, he expected a lot more gains out of the current market.

He ticked off several stocks whose prices have been appreciating, but also reminded the forum that there were also other reasons to buy.

"You not only buy stocks for the capital gain. You have stocks that are actually paying you a cash dividend that is better than any CD than you can get in Jamaica today," he said.

neville.graham@gleanerjm.com