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Stock market regresses six years - Wealth depleted to $493b from high of $820b

Published:Wednesday | February 3, 2010 | 12:00 AM

The Jamaican stock market is performing at levels not seen for six years, as equities struggle to compete with other investments, notwithstanding an environment of falling interest rates that, theoretically, should be good for stocks.

In January, stock market wealth evaporated at a rate of $2.6 billion per day, totaling a $52 billion loss for the month.

The main JSE Market Index dropped 9.8 per cent to 75,166 as a result at market close last Friday - lows not seen since January 2004 when the index was at the 72,829 points - and culling capitalisation to $492.9 billion, from $545 billion at yearend 2009.

Two years ago, in the pre-crisis period - stock market wealth nudged $820 billion in 2008, with the index hitting 109,904 points in July of that year - a level not repeated since.

In January 2010, the market's descent was mainly due to the performance of Guardian Holdings Limited, the leading loser whose price fell $124.50 or 42 per cent to $175 per share on flimsy trades of 1,700 units for the month.

The Trinidadian insurance group is restructuring operations - shedding non-performing businesses in the process.

Of the $52 billion decline in market capitalisation, GHL accounted for $25 billion. But analysts also say that the Jamaica Debt Exchange (JDX) has injected new uncertainty in the market, reflected in a flight to foreign currency-denominated investments and a propensity to hold onto cash.

Brokers are now more aggressive about pushing equity-linked products such as unit trusts and mutual funds, as well as foreign bonds and stocks.

Last month, for example, Pan Caribbean Financial Services, launched its new newsletter 'Money Watch' that gives weekly picks of foreign stocks.

The retreat from the Jamaican stock market was evident throughout 2009, when the value of shares traded for the year was valued by the Jamaica Stock Exchange (JSE) at $12.2 billion or $1 billion per month, a return to 2002/03 levels, and about one-seventh the $77 billion of transactions recorded in 2008.

In January 2010, the market traded $3.13 billion of shares, but the majority $2.57 billion was in Supreme Ventures Limited (SVL) stock. Twelve stocks gained in value but more than twice that number, 26, ended the month in the red.

Directors and associated parties to SVL, on January 11, traded at least 820 million shares according to stock market filings - one broker said the trades amounted to 1.12 billion shares at $1.95 per share - but company secretary Winsome Minott has not responded to requests for clarification on what the transactions were related to.

On January 11, more than 1.31 billion SVL shares were transacted, dominating activity on the market for the entire month which recorded transactions on 1.47 billion units, including junior market trades.

The stock closed down one cent for the month at $2 per unit.

Since July 2009, Bank of Jamaica has cut 650 basis points off interest rates. The central bank is expected to slice rates further from the current range of 10.5 per cent to 15 per cent once the JDX closes.

The bond replacement programme reprices domestic bonds at 12.25 per cent, on average, and cuts 610 to 630 basis points off the notes being replaced. Comparably, Jamaican stock prices depreciated 3.8 per cent year on year, and 5.8 per cent in January alone, according to JSE data.