Mon | Dec 11, 2023

JSE roiled by virus as investors head for safe haven

Published:Saturday | March 21, 2020 | 12:21 AM
Andrew Issa, head of Coldwell Banker Jamaica Realty.
Christopher Williams, president & CEO of Proven Management Limited.

Jamaican stocks suffered another collapse on the first day of a government shutdown Wednesday as a virus-containment strategy, then clawed back a tiny portion of those losses on Thursday.

But while the market fell 10,768 points, or 2.85 per cent, to fresh lows as the coronavirus crisis continues to unfold, stocks have seen even worse declines this month. There was a 21,152-point drop on March 5, and a 19,336-point decline on Monday.

Those are indications that investors are cashing out and heading for safe havens. They are now either holding cash or likely to invest in real estate and emerging market bonds.

That’s because the market expects business, and the companies that trade on the Jamaica Stock Exchange, JSE, to eventually begin feeling the brunt of the virus.

But some are warning against panic.

“Panic benefits the buyer. So, don’t panic,” said Christopher Williams, president and CEO of Proven Management Limited, PML.

The market conditions have caused Proven Investments Limited, which is managed by PML to pull back from a US$75-million fundraising effort.

If the economy gets back to a new normal in about six months, the value of investment portfolios should rise again in a measured manner, Williams reasoned.

He projects that the earnings of companies will dip about 10 to 15 per cent due to an expected revenue falloff; and that stocks which dipped below that level are potential targets for purchase.

“We do not want to miss this opportunity. Now is the time to buy,” he said.

At the end of February, stock market wealth was estimated at about $2 trillion. More than half-trillion of that has evaporated amid the sell-off.

The JSE combined market closed at 368,226 points on Thursday, up 702 points, or 0.19 per cent, from Wednesday’s close of 367,524 points.

Those selling, however, are taking steep discounts or losses in order to liquidate their shares.

Biggest sell-off

Wednesday was the biggest sell-off in March, with over $755 million worth of shares changing ownership on the JSE. It was more than twice the $307 million in trades on March 5, the second-heaviest trading day for the month. Investors sold millions of shares in companies such as Barita, Lumber Depot and Wigton Windfarm. At the end of the day, over 51 stocks declined compared to the 23 that advanced.

In worldwide markets, Williams said large global institutions were exiting emerging market bonds in favour of investment-grade bonds, such as US Treasuries. Consequently, yields on investment-grade instruments are down, but up for emerging market bonds.

During March, the one-year US treasury yield dipped from 0.90 per cent to 0.19 per cent. Over the same period, the average yield for Bank of Jamaica certificates of deposit moved up from 2.35 per cent to 3.5 per cent, according to the results of central bank auctions on March 4 and March 18.

Additionally, the latest CD offer at $8 billion did not receive full subscription, while the $8 billion offered at the start of the month was twice oversubscribed, even at the lower yield.

“There are opportunities for investors; credit spreads have widened,” Williams said.

Proven Investments had planned an additional public offer, APO, of shares, or US$50 million to US$75 million, to buttress its capital for new acquisitions.

It, however, suspended the offer this month due to the market turmoil. The APO was fully underwritten, which meant Proven would have raised the funds, regardless of market take-up, but Williams said the company pulled back anyway as the markets had entered a new reality, which required reassessment.

Proven wanted the funds to buy a bank and finance a new real estate development.

“We are renegotiating prices for the bank deal — all deals, actually. The reality is that market conditions have changed and we are renegotiating. Obviously, that is what our shareholders expect of us,” he said.

As for real estate, Williams thinks developers will hold off on new schemes and wait for things to settle down. He doesn’t think the fallout will affect the wealthy, saying they usually buy real estate with the proceeds of cashed-out fixed-income investments; while small buyers will continue to invest as they are driven by the need for shelter, he said.

It’s a similar assessment from Andrew Issa, head of Coldwell Banker Jamaica Realty.

“So far, there has been only one cancellation for a sale and one for a rental,” the realtor said.

Issa thinks 2020 and 2021 could see increased real estate activity, but it depends on whether the country can “get out the woods by July,” he said.

In 2008, during the last world financial crisis, the real estate market dropped about 20 per cent, but Issa doesn’t see that being replicated, saying the market then had been propped up by Ponzi schemes that went bust.