JSE junior market among best globally, but challenges persist

Jamaican investors holding main market stocks saw diminishing returns over the first six months of the year, but owners of equities that trade on the junior exchange saw their holdings rise in value, at levels that ranked near the best in the world.

The second half of the year should see investors continue pricing in high inflation and higher interest rates, Managing Director of the Jamaica Stock Exchange Marlene Street Forrest told the Financial Gleaner.

As of July 6, the JSE main index was down 3.5 per cent year to date, but the junior market was up by 27 per cent. The drag by main market stocks also pulled the JSE combined index down by around one per cent. The junior market is also the only platform to add new company listings so far this year, namely, JFP, Spur Tree, Edufocal and Dolla Financial.

The overall market is not expected to hit new records this year as interest rates are on the rise. That’s because in a scenario where fixed-income securities are generating higher yields as interest rates climb, the equities market usually has to compete more for investor interest. Generally, there is an inverse relationship between the performance of the market and high interest rates, where investors seek the best possible returns on their investments.

But Street Forrest still expects stocks to hold their own and perform reasonably well. Market capitalisation – which represents wealth held as ordinary shares that trade on the exchange – has been dipping but continues to hold above $2 trillion.

“If one were to examine the current macro environment, it is hardly likely that the rate will trend so high that the market becomes … uncompetitive to investors,” she said.

But higher interest rates also induce business owners to list on the exchange as a means of raising capital and avoiding expensive loans, she added.

“More issuers are understanding the power of patient capital, that is equity financing. And with interest rate trending up, and other uncertainties, equity financing becomes a safe harbour. More companies are, in fact, preparing to list,” Street Forrest said.

Investors should also expect the exchange to launch new services before year end, including shorting to allow equity traders to profit even if the market declines.

“We are targeting December 2022, all things being equal,” she said.

Investors will be allowed to short eligible securities based on requirements set by the JSE. The specifics regarding the eligible stocks for shorting will be released at a later date.

The stock market remained largely flat over the last six months, but the negative conditions in the macroeconomy might push it downwards, but investors who short stocks will be able to profit from the fall in individual stock prices.

“Shorting should make trading more interesting. There’d be more price efficiency and discovery, which, to me, bodes well with the development of our market,” said Jason McPherson, senior portfolio adviser at the asset management firm Proven Wealth.

Economic challenges

McPherson stayed clear of predicting whether the combined index would rise for the later part of 2022, due to challenges clouding the macroeconomy. The combined market includes main, junior and US dollar stocks.

The current performance of the JSE combined index puts Jamaica within the top 20 best-performing stock exchanges globally. The performance of the junior market alone would have made it the second best-performing market in the world.

Only 17 of 87 global exchanges analysed by the Financial Gleaner made positive returns year to date. The best performer was the Istanbul Stock Exchange XU100, up 30 per cent year to date, followed by ASE Amman, up 20 per cent; IPSA, up 16 per cent; and Lasi Lusaka, up 15.5 per cent, according to Countryeconomy, a website that tracks economic data.

The worst performing exchanges were Sri Lanka Colombo Stock Exchange ASPI, down 42 per cent; Russian Index Moex, down 41 per cent; Vienna Stock Exchange’s Austrian Traded Index ATX, down 28 per cent; and Nasdaq, down 28 per cent.

The major United States exchanges, which started 2022 at all-time highs, suffered heavy declines during the first half of the year. It is reportedly the worst performance since 1970, as that economy continues to grapple with high inflation and recessionary fears.

On the JSE, the dollar value of trades in 2022 outpaced 2021, but is slightly behind 2019’s record levels. Specifically, from January to June 2022, the market value of trades totalled $41.4 billion, nearly doubling the $21.5 billion of trades at half-year 2021. In 2019, the market value totalled $45.3 billion over the same period.

The overall flat performance of the combined index masks the stellar performance of a number of equities, including top juniors iCreate, up 480 per cent; FosRich, up 256 per cent; and SSL Ventures, up 212 per cent. The top gainers on the main market were Supreme Ventures, up 72 per cent; Portland JSX, up 72 per cent; and 1834 Investments, up 64 per cent.

Also, during the span of 52 weeks, the price of the Caribbean Producers Jamaica stock climbed tenfold, from $3 to $30, before cooling to the $15 range.

The top declining junior market stocks were ISP Finance, which slid 41 per cent; tTech, down 30 per cent; and The LAB, down 28 per cent. The the big main market losers were Sygnus Real Estate Finance, down 16.5 per cent; Radio Jamaica, down 22 per cent; and NCB Financial Group, down 19 per cent.

Outside of new listings and the plans for shorting, the Jamaica Stock Exchange will soon be adding new features to its JTrader online trading platform, and expects to make headway on the roll-out of trading of digital assets.

“Our platform which we intend to roll out is a digital assets platform, and the intention is to commence with securities tokens. We are anticipating to commence within the fourth quarter, if all boxes are checked,” Street Forrest said.

steven.jackson@gleanerjm.com