Dear Sirs:

I read in the Jamaica Observer of February 1 comments attributed to me, in keeping with my recent presentation at the Capital Market Caribbean Conference hosted by the Jamaica Stock Exchange (JSE).

While elements of your report reflected some of what was said in my presentation, there are a number of factors that are misrepresented and should be clarified for the benefit of all concerned. I must also point out that I was given 10 minutes to make the presentation which was done with the aid of graphics and PowerPoint notes, as such I could not elaborate fully on the various points highlighted.

The article indicated that Jackson, for his part, predicts “a 33 per cent rise in the All Jamaica Index, noting that the recovery of the market over the last two years has been the consequence of low interest rates”. I did not say that the market movement for the past two years was due solely to the fall in interest rates. What was stated was that there is an inverse relationship between interest rates and stock values and that was shown by way of a graph. The chart showed that as interest rates rose in 2013 to early 2014, the market fell and with rates steadily falling for the last eight months of 2014, the stock market started to rise. Observation shows that the increase in the stock market grew more steeply than the fall in interest rates and the steeper increase is due to rising profits.

Indeed, one of the very early slides that was shown before the graph pointed to the following: “Just a gentle reminder. Profit drives stocks & dividends too, but interest rates are critical.”

With regard to the forecast for the rise in both the main and junior markets, these were based primarily on technical indicators. I indicated that both markets had broken through major resistance levels and seem poised to reach 290,000 points for the all Jamaica composite index and around 3,400 points for the junior market index. I mentioned that I expected Treasury bill rates to decline this year against the background of stability in the Jamaican dollar, with strong inflows of foreign currency into the system and low inflation. With low rates, more funds would be flowing into the stock market driving up valuations, which I indicated could put PEs around 20 time earnings, as the current prices for a number of stocks suggest. Added to this, a look at orders for the majority of stocks indicates a chronic shortage of supply of stocks for sale.

The implications for such a move in the PE ratio with the majority of stocks priced around 10 times 2017 earnings or less, would result in a sharp increase in prices which would take both markets well beyond where technical indicators suggest, in the next few months.

John Jackson