KEY MARKET players anticipate increased buoyancy in equities this year. According to Mayberry Investments' chairman and chief executive officer, Christopher Berry, two principal factors will bring about an increasing shift to equities.
"Overall liquidity is likely to improve as a result of the renewed downward movement in interest rates and when this is coupled with the demonstrated higher gains of equities over fixed income securities, I expect an increasing shift to the stock market among investors", Mr. Berry said.
A higher return on stocks over fixed income investments is universally true. An equity analysts' investment trust in the United States, for example, reports that stocks included in the Dow Jones World Global Index had an average annual return of 10.04 per cent for the five-year period between 1993 and 1998, compared with an average annual return of 5.79 per cent on the Lehman T- Bond Intermediate Index.
The results of similar comparisons in Jamaica are even more startling. Mayberry Investments' Research Department reports an average annual return of 56.1 per cent on investments in stocks last year compared with an average return of 18.1 per cent on 182 day T-Bills.
While it is true that increased returns are always accompanied by increased risk, Berry said that appropriately planned and managed portfolios can offset the risk.
Barita Investments chairman Rita Humphries-Lewin also anticipates a revitalised stock market this year partially as a result of lowered interest rates. "Another important factor", she said, "is that key companies are beginning to show improved performance".
Winners
Companies such as Pan Jam, CIBC (Jamaica), First Life, Jamaica Broilers and Palace Amusement, the top five winners for the twelve-month period ended February 28, reported increased earnings and along with other companies, are expected to continue to drive stock price appreciation.
Following a 2 per cent decline from its 2000 year-end close of 28,893.24 points, the JSE Index appeared to be nudging its way back north at the close of trading on Thursday. In addition, the number of transactions and the volume traded were up 36.3 per cent and 9.4 per cent respectively, over the 2063 transactions and the 72.8 million units traded in the last two months last year.
More to be done
While sharing the general optimistic outlook regarding the stock market's future, other players pointed to areas that still require some attention. JSE chairman and Alpha Investments' general manager, Roy Johnson said that much more should be done to strengthen the use of the stock market as a source of equity capital and for corporate expansion. A more integral role in the government's divestment programme would assist, Johnson said and the Stock Exchange must also undertake increased public education to focus the market's view on the capital raising function.
"A stable economy would be the biggest boon to the stock market", another major player said. "If we can get interest rates down to about 14 per cent and we can begin to see some signs of growth in the formal economy, then long-term confidence would be restored which could only do well for the equities market".
The consensus among the brokers with whom this column spoke is that the market needs to grow and this won't happen unless the economy does. With growth would come increased liquidity, decreased volatility and decreased concentration.
Concentration refers to share of total market capitalisation of the ten or so largest stocks. In developed markets, this ratio ranges between 10 and 20 per cent: The higher the ratio the fewer the stocks that drive total market movements.
At the end of trading last year, the ten largest market cap companies on the Jamaica Stock Exchange accounted for 87.5 per cent of total market capitalisation. Market growth would correct this imbalance.
This column is part of the on-going public education programme of the Council of the Jamaica Stock Exchange.
