Analysts expect increased stock market activity by late 2024
FINANCIAL ANALYST Dennis Chung is predicting that once interest rates begin to trend downwards, the stock market will rebound, noting that this should start happening in the second and third quarters of the year.
“I think what is happening is that persons are taking advantage of the high interest rates in terms of alternative investments, and you will also see that the real estate market is doing well,” he said.
“Once interest rates start coming down, people will start to see the value of the stock market. People are now seeing the value in the market from the institutional level and are starting to position themselves – not a lot – but you will start to see movements as soon as interest rates and inflation come down,” he informed.
Jahmar Brown, senior research analyst at JN Fund Managers, a member company of The Jamaica National Group, agrees that there is a good chance that interest rates could decline further in the second half of 2024.
“Several companies are bullish going into this new year,” he pointed out, noting that Wisynco and Kingston Wharves are two such names, as both companies are fundamentally strong, and they have both detailed significant expansion plans in the pipeline.
He also cited Sygnus Real Estate Finance, which, he informed, has almost completed its second major project (One Belmont) that will deliver significant value for shareholders – and the stock is currently trading at a significant discount. He also pointed out that as real estate is an asset which is usually heavily financed with debt, a declining interest rate would generally suit those assets.
Brown said that Scotia Group Jamaica is a stock he is watching for 2024. Over the last few years, the company sharpened its business model, invested heavily in technology, and is set to reap the rewards of those investments. It does not hurt that Scotia consistently pays a good dividend, he added.
Chung is predicting that interest rates and inflation will begin to decline in the latter half of the year.
“I was thinking first quarter of this year, but it might be a little longer than that due to the global situation with the Israel-Hamas war. So maybe second to third quarter, I will expect that people will start moving back to the stock market, as there is a lot of value there now,” he said.
As of December 2023, Jamaica’s point-to-point inflation rate was 6.9 per cent. The inflation rate in December once again exceeded the Bank of Jamaica’s (BOJ) target range of four per cent to six per cent. The BOJ’s policy rate is now at 7.0 per cent, having moved from 0.5 per cent in the years leading up to November 2022 to help cool inflation. The BOJ’s policy rate is the interest rate paid on overnight deposits held by deposit-taking institutions at the BOJ.
Chung urged investors to consult with their financial advisers on the best stocks to purchase that will perform well, based on the expected outlook for the economy.
Reflecting on 2023, Brown said one of the highlights was the fact that companies stopped mentioning COVID-19 in their analyst briefings.
“The COVID-19 restrictions were completely removed in most places by the second half of 2022, so naturally, during that year companies were still operating within that context. However, as the new year (2023) rolled around, they were again able to operate with the usual freedom that they took for granted and, importantly, we started to see the ease in restrictions flow through the financial statements and the narratives around the numbers reported, with fewer companies linking (poor) results to COVID-19,” he said.
Brown, too, pointed out that global politics and its potential to further fragment global supply chains which were being reconstructed after the pandemic are the key risks which could delay the eventual lowering of inflation and, by extension, interest rates.