Sun | Nov 18, 2018

The bulls still rule - Stocks predicted to continue climb in 2018

Published:Friday | January 12, 2018 | 12:00 AM
Kelley Reid, asset manager at Stocks & Securities Limited.
Greig Lindo, assistant general manager for treasury and trading at JMMB Investments.
Ryan Strachan, wealth manager at Ideal Group Corporation Limited.
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The bulls still rule

Stocks predicted to continue climb in 2018

Investors who bought Knutsford Express, Pulse Investments or Berger Paints Jamaica stock would have tripled their money over the past year.

Five other stocks would have doubled an investor's money in 2017, a review of the market's performance shows.

Last year, 18 of the 70 listed companies - or one in four - offered gains above 50 per cent; and for the first time, stock market wealth blew through the trillion-dollar mark, in continuation of investors' love affair with equities since the Jamaica Stock Exchange's (JSE) world-leading run.

Brokers expect the trajectory to be maintained northwards in 2018, amid the JSE's third year among the top tier of global equity markets.

A number of analysts polled by the Financial Gleaner cited new listings, a slew of first-time investors, and continued profitability as micro factors that pushed market wealth beyond $1.19 trillion at the end of December. That's up from $818.5 billion in 2016.

The combined index moved from 206,552 to 294,986 points at the end of 2017 - a gain of 43 per cent - but at one time had spiked above 305,000 points back in October.

Asset manager at Stocks & Securities Limited, Kelley Reid, expects the combined index to increase by more than a third to surpass 400,000 points this year.

If that prediction holds, it would mean the market would more than triple the gains over many rival investments, such as money market funds or bonds.

"Understandably, investors are concerned about the high valuation of the equity market - this is a global phenomenon. A market correction is coming, however, we do not anticipate this happening in 2018," Reid said.

A market correction can occur in either direction but is typically defined as a 10 per cent fall in stock values.

Reid said investors are deviating from previous investment tactics - shifting from the now low-yielding bond markets to equities and private placement deals.

On the JSE last year, luxury coach operator Knutsford Express was the lead performer, jumping 275 per cent to $15. Model agency Pulse Investments spiked 203 per cent to $1.80; and paint maker Berger rose 196

per cent to $16.55 amid a change of ownership

and a buyout offer to

minority owners that they overwhelmingly rejected.

The other two in the top five were Palace Amusement, up 187 per cent to $560, and Eppley, which rose by 144 per cent to $12.

Greig Lindo, the assistant general manager for treasury and trading at JMMB Investments, also expects the market to continue its upward trend.

"Additionally, with new listings expected throughout 2018, this should continue

to stir investor appetite,

as evidenced by the oversubscription rates of the recent initial public offerings," the analyst said.

"On the other hand, changes in the global investment climate, such as increasing global interest rates, could potentially dampen market activity."

Ryan Strachan, wealth manager at Ideal Group Corporation Limited, says the market will jump in 2018, as long as the larger listed companies continue to grow their revenues and earnings.

The JSE itself sees diver-sification of product offerings, and the broadening of the ownership base for stocks, as key elements to growing the market.

But outside of the reduction of the settlement period for stock trades, the exchange did not implement any new initiatives in the year.

There was no movement, for example, on the JSE's three-year-old effort to introduce depository receipts, which would allow the proxy listing of popular US stocks on the local market.

"I think it's possible, but it is heavily reliant on regulation and the Bank of Jamaica's approval, if I understand it correctly. That could present a challenge from a foreign exchange standpoint," Strachan said. But he also noted that companies like Ideal provide investors with avenues to buy US shares outright instead of via proxy.

On the JSE, a number of stocks are trading at multiples above 20 times earnings. Put another way, it would take 20 years of profits to equate to the current stock price. That has led some to conclude that the market is overvalued - and it ties in with Reid's assessment that a correction is coming.

Analyst Chrevaughn Legister of NCB Capital Markets reasoned that these higher valuations are being driven by prevailing trends such as low interest rates, single-digit inflation and, more recently the appreciation in the local currency. The JMD's appreciation has lowered the cost of production for certain industries, while increasing the relative attractiveness of JMD assets, the analyst said.

The current economic condition has created a more "favourable operating environment" which, in turn, has led to firms exhibiting stronger fundamentals and earnings growth, Legister said.

Ryan Reid, the general manager in charge of wealth management at Proven Wealth Limited, argued that some portfolio diversification may be required, but "only" for investors who are heavily weighted in stocks.

There are 32 main market, 34 junior market and four US dollar-listed companies.

The JSE led the world in 2015 among 92 equity markets, based on strong earnings and acquisitions of large companies. Last year, the main market added three listings, the junior market added five and the US dollar market added one.

steven.jackson@gleanerjm.com