Christopher R. Chin Loy, Contributor
MOST INVESTORS wish that 2005 would just fade away as a bad memory or at the very least, be able to go back and change some of their investment decisions. The market had set itself up early on in the year with many promising signs for the market. There was a sound policy of interest rate reductions in place, a relatively stable rate of exchange, and sufficient liquidity in the markets to indicate to investors that the equity market in particular could benefit significantly. There were, however, a handful of analysts who predicted that the market could contract significantly during the year as it had accelerated at such a heated pace during 2003-2004, without any real profit taking. Not to mention that in November 2004, Hurricane Ivan barely missed us, but left behind sufficient damage, and more importantly forecasts of an even more active hurricane season for 2005, an omen that could indicate a desire of investors to remain liquid, at least during the 2005 Hurricane season which, if one recalls, actually started earlier and finished later than normal during 2005. There are enough listed companies which are directly affected by the effects of a hurricane making landfall, to induce investors to stay away from the market. I believe that many of the opinions of the dissenting analysts who felt that the market was due for a contraction, have merit.
REASONS
The beauty of an economist's job is that in hindsight we can give reasons for everything, and then use these arguments in an attempt to plan and forecast the future, which if these are missed can then be explained away once again in hindsight. What a great job!
So after not listening to these analysts and continuing to invest in the market, and its residual exuberance from 2004, where are you now?
This obviously depends on the stocks in your portfolio, since various stocks have been affected more than others, but if we were to generally measure this by way of the effect of the indices, the Jamaica Stock Exchange index started 2005 at 112,655.12 points, and closed the year at 104,510.39 points, a decline since January 2005 of 7.79 per cent. The All-Jamaica index started 2005 at 116,218.38, and closed it at 104,941.62, a decline of 10.75 per cent. The JSE Select also declined by 11.09 per cent, after starting the period at 3,176.63, and closing last week at 2,859.62 points. And unfortunately the first quarter of 2006 has been even harder on the market pushing declines in the indices even further by as much as 26 per cent.
SIMILAR INVESTMENT OPTION
Generally, investors would not be buying the entire index anyway, but a similar investment option that allows investors to diversify their investments easily are unit trusts or mutual funds. So how did the option of our local unit trusts perform for 2005?
In examining the selling prices of a sample of these, we see that over the year the decline in the selling prices of those unit trusts ranged from 0.14 per cent to as high as 16.59 per cent. With the exception of the one fund declining by 16.59 per cent, all the other funds declined by less than the lowest decline of the indices, the 7.79 per cent in the main index. This can be attributed to the diversification that many of these funds had outside of the equity market. This is a major tenet of many investment advisers as it helps to protect against the volatility that investments invariably encounter. Unit trusts and mutual funds alike are ready-to-buy diversified portfolios for investors who have the desire to further diversify their existing holdings. Additionally with the influx of so many international mutual funds, investors can now add international equity and fixed-income portfolios to their local investments.
Any and all information contained in this article, is the opinion of the author only and has been obtained from sources that the author believes to be accurate and reliable. This does not constitute a solicitation of offer for sale or purchase, neither as investment or legal advice, nor as an endorsement of any stock, fund or company mentioned within. Any queries or comments on the content presented herein may be
directed to the author directly at cchinloy@msn.com.
