The presenters at Investment '06, share a joke during a break at the seminar on Friday, January 13 at the Jamaica Pegasus. From left: Steven Gooden, head of the portfolio management unit, National Commercial Bank; John Jackson, publisher of the Investor's Choice and convenor the seminar; Deborah Cumming, chairman and managing director, Century 21 Heave Ho Properties; Peter Bunting, executive chairman, Dehring, Bunting & Golding Limited; and Jason Morris, investment research & country risk analyst, Jamaica Money Market Brokers Limited.

Stock market analysts are confident that equities will this year rebound from the seven per cent decline in 2005, but caution that political uncertainty, and the government's attempts to achieve fiscal balance could limit the recovery.

The analysts made their prediction at last Friday's annual investment seminar organised by John Jackson, well-known financial analyst and publisher of the Investors Choice monthly magazine.

"The longer elections are delayed, you create uncertainty in the market place and investors sit back and wait," said Jackson, in reference to the election of the president of the ruling Peoples National Party to replace P J Patterson, the prime minister who plans to step down within a few weeks.

But while acknowledging the risks associated with elections - in engendering a 'wait and see' attitude among investors - Jackson argued that historically, election years were not necessarily bad for the stock market. He cited the election years of 1997 and 2002, when the JSE index grew by 19 per cent and 41 per cent respectively.

This year, three PNP ministers of government are vying to replace Patterson as prime minister, and president of the party. That election will be held within weeks, but it is generally believed that fresh general elections may also be called way ahead of its constitutional due date - towards the end of 2007.

"General elections could result in some uncertainty in the economy and result in the pull back of prices," declared Jason Morris, investment, research & country risk analyst at Jamaica Money Market Brokers (JMMB). "But this should be seen as buying opportunity for stocks and bonds," he added.

The seminar was held against the backdrop of a 7.3 per cent decline in the JSE main index and a 9.8 per cent fall in the JSE All Jamaican Composite index last year, and at best, side-way movements in stock prices since the start of 2006.

There was consensus among the speakers - including Peter Bunting, the executive chairman of Dehring, Bunting and Golding, and Steven Gooden, head of the portfolio management unit at National Commercial Bank - that developments within the broader economy would impact the performance of stocks this year. There was also consensus that, while stock prices would appreciate this year, it would not be at the triple-digit level experienced in 2004.

But Jackson surprised participants when he veered from the normal macro economic considerations, to rely on a statistical tool he had developed, to make a stunning prediction:

"80 per cent of the top performing stocks in one year are going to fail the following year," he declared. "Data show that you are better off going into the worst performing stocks any year."

For example, in 2005, only two of the top 10 best performing stocks were in the top ten of the previous year. At the same time, four of the top 10 stocks in 2004, made it to the bottom 10 last year.

Jackson believes that two stocks that made it to the top ten in 2005, were likely to repeat that performance this year: Jamaica Livestock Association (JLA) and Courts Jamaica.

"The fact that the stock market didn't grow last year is a positive for this year," said Jackson. "I think that a number of things that happened last year will be reversed. Timing may be the important thing for the year. Based on the various elements, I won't bet that this will be a buoyant year, but I suspect that you will be able to make some money."

In 2005, nine of the 15 stocks that Jackson selected to be the best performer that year actually made it to the top 15. These selections were published in the Investors Choice magazine.

For Gooden, one development that could change the dynamics of the market this year is the implementation of the Caribbean Single Market and Economy (CSME). He believes that listed companies with a strong cultural affiliation could perform well within this trading bloc.

"Companies that can leverage 'branch Jamaica' and take advantage of the CSME will benefit," he said.

He also sees potential for a wide range of industries to do well this year: banking, conglomerates, communications, manufacturing, and trading.

JMMB's Morris encouraged investors to take advantages of the relatively low prices for stocks during the period of uncertainty.

"2006 is not likely to be that proverbial bed of roses, but neither will it be devoid of opportunities as many of the negative developments that are in control of Jamaicans are likely to recede or be reversed," he said. "The economy is expected to pick up somewhat, and inflation should subside."
Last year, the doubling of the price of oil, double-digit local inflation, and the fiscal deficit faced by the government helped to dampen the price of equities.

However, with the stability in the price of petroleum towards the end of the last quarter, and the rebound in tourism, some analysts predict a significant turn-around in 2006.

"We see Jamaica as an increasing credit story. slowly improving fiscal deficit and debt to GDP," noted DB&G's Bunting.

Bunting highlighted the 4.6 per cent growth in stop-over tourist arrivals, and the 3.3 per cent increase in cruise passengers during 2005; the J$41.1 billion being invested by Jamalco in bauxite/alumina expansion over the next three years, as major positives that will impact 2006.

"Barring the continued weather patterns, we should see continued growth," he said.

In her presentation, Deborah Cumming, chairman and managing director of Century 21 Heave Ho Properties, pointed to strong demand for office and mini-warehousing/mixed use developments, particularly in New Kingston, Liguanea and Montego Bay (especially for information technology). She said that residential properties still represented "a sellers' market in most sectors across the island".

Also among the speakers at the event was Karl Wright, former president, Victoria Mutual building Society.
One strong consensus among the speakers was the concern that crime which reached a record year in 2005 with over 1,600 murders was a negative drag on production and the stock market.

The sponsors of the seminar were DB&G, J Wray & Nephew Ltd, and Boston Holdings. It was held at the Jamaica Pegasus Hotel.

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