A confluence of factors, rather than any single dominant issue, has been blamed for the anaemic performance of stock prices since the beginning of the year - with only a handful of stocks posting gains.

Indeed, the overall numbers paint a daunting picture of the market:

Market capitalisation at US$10.89 billion, is down 22 per cent on a year ago when it stood at US$14.04 billion.
The JSE main index is down 16.8 per cent year-to-date, and 21.4 per cent from a year ago.

Just in the past week alone, nine stocks traded at their 52-week low: Jamaica Broilers, Scotiabank, FirstCaribbean International, Dyoll, Grace, Guardian, NCB, Carib Cement, and Berger.

Companies have largely been pulled down in the general decline, though there are exceptional cases like Carib Cement, of a publicly listed firm facing unique, individual challenges - having been faced with a major recall of its products.

On the other hand, Salada, a small-cap company that has posted modest profit gain, has seen a rebound in its stock price that has gone way beyond the fundamental improvement. cap stock, leading the small group with a return of over 100 per cent.

The factors being cited by company executives for the decline in stock prices range from political uncertainties, to disappointing corporate performance, to what some say is a market that is too short-term in its horizon, and which has been spoilt by the hyper-returns earned during previous periods of bull run.

Yet, some analysts remain remarkably optimistic, pointing to the low daily trading volumes as an indication that what is now taking place is not a major sell-off of stocks, but small-scale repositioning by some investors with frail nerves.

"Market volume is very thin, which is indicative of two things," explains Shane Ingram, financial analyst at the merchant bank, Dehring, Bunting & Golding (DB&G). Investors, he argues, "want to sell but are not willing to sell because the prices are so low and some people want to buy but they are saying 'why buy at this time when prices might come off some more.'"

Bryon Thompson, managing director of Seprod Limited, believes that the current change in political leadership in Jamaica has made many investors nervous, and is driving them away from stocks and into hard currency holding.

"There are many factors - politically, the change of leadership as people become more apprehensive, the instability of the dollar - people tend to be moving their money into US dollars, where they feel they have a lower risk," says Thompson. "It's a mix of those factors."

Thompson also believes that recent predictions that Jamaica could face another year of unstable weather conditions was forcing investors "to start looking into the companies.(they) think that it will be a repetition of what happened in 2005."
Seprod is one of the few companies that has traded even this year, closing yesterday at $15.85, just over half a per cent decline from the beginning of the year. At 12.4, its price earning ratio is just about the market's average.

"We have been holding our own and I see no reason for it not to continue to improve," said Thompson. "We had a good year last year and so far this year the trend is continuing. I am confident in our performance for the rest of 2006."

One company whose performance was affected by the poor weather in 2005 was Grace, Kennedy. Grace's stock price closed at just over $60 yesterday - from $115 a year ago.
Don Wehby, the company's chief financial officer, said that poor fourth quarter results adversely affected the stock price of most firms, including Grace.

"I think if you look at the recent fourth quarter results, a lot of companies are reporting profits below the prior year or they are reporting profits less than what the market expected," Wehby told the Business Observer. "Last year was a very bad year for our retail division because of all the bad weather. Then we noticed in the last quarter leading up to 2006 that there was definitely a slowing down of the Jamaican economy and of consumer demand, and when you have that, it is going to affect earnings of a lot of companies."
For its full 2005 financial year, GraceKennedy posted profit of $2.17 billion, 4.4 per cent below the previous year. Revenues increased by 7.5 per cent - or at half the rate of inflation - to $30.7 billion.

Year-to-date, Grace's stock price has fallen by a quarter. Its price earning ratio at around 10 is well below the 16 that is the average of listed manufacturers.

Wehby says he is not worried by these numbers.
"I would say for the Grace price, using the fourth quarter results, you're looking at a PE (price to earnings) multiple of approximately 10," he says. "I would say that this is an exceptionally good price."

John Rosen, general manager of Salada Foods, has seen how better-than-projected results can impact the stock price of a company.

For the first quarter ended December 31,2005 Salada had earning per share (EPS) of 63 cents, an improvement on the 59 cents of the corresponding period the prior year. Net profit was $6.5 million, a six per cent increase over the $6.2 million for the same period in 2004.

Yet that modest improvement helped to catapult the stock price to $21, two Mondays ago, a 109.8 per cent year-to-date appreciation. The price has since pulled back, closing at $15.85 yesterday. A year ago, Salada sold for $14.

"We went through a fairly serious restructuring exercise last financial year and that is beginning to show fruit now," said Rosen, in explaining Salada's stock price movements. "We tightened up on a lot of spending and any haemorrhaging that affected the company has been stopped. It is beginning to bear fruit now...we are reasonably satisfied with our (stock performance) and are optimistic to what the future holds.

Debora Lopez, vice-president of wealth & distribution at NCB Capital Markets, says that investors need to take a longer term view of stocks so as to avoid the deep fluctuations that have characterised the Jamaican market in recent years.

"Try not to get too caught up with the day-to-day fluctuations," is her advice to investors. "We have always preached that if you are going to invest in the equity market, you have got to think like an owner as opposed to someone who is buying units of a company.look at the fundamentals of the business as opposed to day-to-day prices."

Grace's Wehby echoes a similar sentiment: "If you are buying equity, you need to buy it for the long term," he says. "It is not a short-term investment. We really need to have an educational campaign about investing in equities, and I think that's the responsibility of the brokers out there to be market makers."

Such a development would help to address what Seprod's Thompson sees as a get-rich-quick mindset among equity investors.

"The mindset is that everyone is looking for quick returns," he complains. "They want to put a million dollars somewhere and tomorrow they want 2.5 million...how can you get people out of that mindset?"

Yet both Lopez who sees the market as "very weak right now", and Wehby believe that there are good buys - given the low price earning ratios in the market.

"Hard-core equity investors have been steadily buying over the period," notes Lopez. "There are opportunities when the market is down for (investors) to buy and sell, and we believe that now is the time to buy."

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