From left, Fitz Ritson, Collister and Chin LoyDennise Williams, Staff Reporter
SUMMER IS practically over, but the stock market summer doldrums remain. Daily trading on the Jamaica Stock Exchange (JSE) either meanders slightly up or slightly down each day.
However, those in the know say that the time to get into the market is now.
Sunday Business spoke with four analysts who gave their take on what is happening now, what moves investors should make and what listed companies can do to spur investor participation in the market.
Sunday Business (SB): This appears to be a sluggish bear market. Why are investors staying away?
Karen Fitz Ritson (KFR), director of Fitz Ritson & Associates: With spiralling fuel oil prices globally, most countries are challenged with taming the 'inflation monster' for their industrial and economic survival. Coupled with the numerous natural disasters that we have been faced with this year, most recently 'Katrina' in the Americas, this too will have serious socioeconomic implications for our economy.
Christopher Chin Loy (CCL), account executive at Mayberry Investments: There are a number of issues affecting the stock market right now. There is speculation as to where inflation will actually end up; there is talk that it might go as high as 25 per cent. Then there is concern about the government's response in terms of interest rates. Of course, we can't forget the ongoing hurricane season, of which we have two more months. And so, a lot of investors are holding back as they don't want to be stuck in the JSE because Jamai-cans tend to self-insure, especially with insurance premiums rising after Hurricane Ivan.
Keith Collister (KC), economist: In the short run, the balance of investment risk still appears to be negative, with concerns over higher interest rates, hurricanes, etc., creating a preference for liquidity, particularly cash. While on balance I still don't expect domestic interest rates to rise from current levels, investors need to watch this carefully as any reversal of recent interest rate declines would in my opinion mean that the stock market would definitely be down for this calendar year.
SB: What can listed companies and brokers do to generate interest in the market?
KFR: Companies should consider more bonuses, splits, rights issues, which will encourage and sustain market activities. We cannot ignore the fact that most of our listed companies throughout the years have served many investors well and one should ride the proverbial 'tide' with them because they have operated in most part with prudence on behalf of their shareholders.
Therefore, it is the role of financial advisers to remind their clients of the sound variables which attracted them to the companies in the first place and encourage them to maintain their investments. On the flip side of the coin, companies also need to share with their shareholders and investors their continuous strategies to ensure investor confidence. History has proven that once companies engage in dialogue with their shareholders you instil trust and confidence and they will invest more with you.
CCL: Companies should consider increasing their dividend yield. Of course, that means taking out revenue from the company, which can impact growth. But look at Bank of Nova Scotia and Carerras - these companies have managed to have capital growth and reasonable dividend yield. This shows that while it is important for a company to grow, dividends more than anything else, would excite investors.
SB: What actions should investors or potential investors take right now?
KFR: Potential investors should be wary of companies that try to pursue massive expansion in a recessionary climate especially into industries not related to their core competencies. Traditionally, this has crippled economies and Jamaica is no exception to the rule. We experienced that less than ten years ago with the meltdown of several financial institutions, which divested outside of their core competencies and this adversely affected their core businesses. This is not a route we want to go again.
Vernon James (VJ), manager, stock brokerage division Dehring Bunting & Golding: First, investors must realise that the stock market is cyclical. If you are patient enough, at some point the JSE must come back. Smart investors are buying now and averaging down. When prices eventually go up, you will benefit.
The key to profiting is to buy well-managed companies that put out good earnings. And that is very important consistent good earnings.
CCL: Throw more money at the JSE now! There is no way to earn a real rate of return on the money market. Insofar as the Bank of Jamaica (BoJ) has a healthy net international reserve to defend the local currency, I expect interest rates to stay at current levels. And there is no real benefit to speculate with the U.S. dollars, as there is a huge cost to hold U.S. dollars. The BoJ will burn speculators. That means for adequate returns, you have to look at the JSE.
KC: Investors would be advised to only buy stocks on significant weakness at this time, or with a medium to long-term view.
Investors with a medium to longer-term view should however try to find those companies with pricing power and steady long-term growth prospects, as these will eventually be their best protection against the current high inflation environment.
They should, however, seek expert advice on these choices, as some of the traditional steady growers may be currently under pressure from higher costs and lower margins, and produce results below market expectations with consequent continuing falls in their prices.
SB: Where are the bargains to be found on the JSE?
KFR: Companies that are heavily invested in real estate will be attractive because in an inflationary environment, properties will benefit from the valuations. Potential investors should also balance their equity portfolios with mature and defensive (blue chip) securities because they traditionally have consistent dividend yields.
VJ: Right now, some of my favourites are Desnoes & Geddes, Life of Jamaica, Jamaica Money Market Brokers, Goodyear and Courts.
CCL: There are some quality stocks that are at ridiculously low prices. What immediately come to mind are Bank of Nova Scotia, Dehring Bunting & Golding, Mayberry Investments Limited, Pan Jamaican, Jamaica Broilers and Jamaica Producers.
