Why stocks make sense now
Interest rates in Jamaica have trended down since 2010-2011 when we had the Jamaica Debt Exchange programme, and they continue to trend down now. And in this environment, one of the most attractive investments has been the stock market.
ALOW interest rate environment has made the stock market a more appealing option for investors, says Jermaine Deans, deputy general manager at JN Fund Managers Ltd (JNFM).
Jamaicans have grown accustomed to high interest rates, and, by extension, placing funds on fixedincome investments. However, since the subprime meltdown in 2008-09, global interest rates have trended down. Low interest rates are generally viewed as good for the stock market, subject to company valuations. With interest rates being at these low levels, companies have been taking the opportunity to refinance debt obligations via new debt and or equity financing.
“Interest rates in Jamaica have trended down since 2010-2011 when we had the Jamaica Debt Exchange programme, and they continue to trend down now,” Deans explained. “And, in this environment, one of the most attractive investments has been the stock market.”
IMPROVED ECONOMY
The Bank of Jamaica (BOJ) uses the issue of its own certificates of deposit and the purchase or sale of government securities as a major tool to influence the level of liquidity in the financial system, the volume of credit, and, by extension, the level of interest rates.
Deans pointed out that in practice, lower interest rates dictated by the BOJ are normally associated with improved macroeconomic fundamentals in a context of increased liquidity in the financial system, making it easier for businesses to invest, grow, and earn profits.
He noted that the Government of Jamaica’s 180-day Treasury bill rates have trended down from 24.45 per cent in December 2008 to 6.13 per cent in July of 2017, a slight uptick from 2016 levels. This uptick is mainly as a result of reduced appetite as opposed to a change in interest rate direction.
“As rates trended down, equity markets have done well,” Deans said. “In 2015, the Jamaica Stock Exchange’s Main Market appreciated 97.36 per cent, and in 2016,
27.59 per cent. The Junior Market appreciated 160.34 per cent in 2015 and 44.82 per cent in 2016.”
This vibrant market accommodated three initial public share offers in July alone, he noted. Members of the public bought shares in Stationery and Office Supplies, Express Catering, and Productive Business Solutions.
Deans was speaking at an investment workshop, mounted by the Jamaica Stock Exchange, JNFM, and the Inter-American Development Bank at the Knutsford Court Hotel in New Kingston recently. He cautioned the prospective shareholders that share prices rise and fall and that investors should be prepared for the long haul.