Investment in the Jamaica Stock Exchange (JSE) Junior Market – which has consistently outperformed the main market – decreased by over 12 per cent in the March 2012 quarter.

It recorded the sharpest decline of all the JSE indices, according to the Bank of Jamaica Quarterly Monetary Policy Report.

But one financial analyst said the slump was a response to the price of some stocks being pushed well beyond what they were worth at the end of last year.

The quarter’s results are, therefore, due to the rebound from “irrational exuberance”, said John Jackson, publisher of Investors Choice magazine

The Bank of Jamaica said that the proposed removal of the tax waiver for listed companies caused the decrease.

Companies listed on the Junior Market do not pay income tax in the first five years of listing and enjoy a 50 per cent cut in taxes in years six to ten.

The Private Sector Working Group on Tax Reform suggested that the 50 per cent credit in the second five years be removed.

“It’s hard to say how much of an impact the removal of the tax break will have because we are still a far way off,” said wealth advisor, Vivian Bedassie from NCB Capital Markets. “But the implementation of taxes is always perceived negatively”.

Jackson disagrees. “Theoretically, the Junior Market would not be worse off,” he said. “I don’t expect there to be much of an impact”.

The general manager of the JSE, Marlene Street-Forrest, said the outcome will be determined by how people view the change.

“It will depend on if they think it will affect their returns or the company”.

All JSE indices declined for the quarter with the main market down by about four per cent.

“The decline occurred despite improved earnings of several listed companies, relatively low domestic interest rates and general stability in the foreign exchange market,” the BOJ said.

However, “people would begin to sell shares because of the uncertainty right now,” Bedassie said.

Uncertainty in the economy is associated with measures that might be taken by the Government in the upcoming fiscal budget presentation.

The new International Monetary Fund agreement with Jamaica is another contributory factor.

“People should be concerned about the economy in general,” he said, “especially with what’s happening in Europe”.

Jackson said, however, that the economy is in better shape than it was three years ago.

“We’re looking at a tight economy in the next year or two [but] people have to look at their own situations so they can plan for any negative eventualities”.