THE downturn in the Jamaica Stock Exchange (JSE) since the start of the year, coinciding with fears around the coronavirus (COVID-19) pandemic across the global economy, is prompting the JSE to consider the way forward as Managing Director Marlene Street Forrest says it is currently analysing market patterns.

According to market experts, the 4.9 year-over-year decline of the local stock market is attributable to investors selling their shares to position themselves to take advantage of the new initial public offerings (IPO) and additional public offerings (APO) that are on the market, and those that will be coming over the next few months.

“There is still quite a bit of wind for the [local] stock exchange and the companies that are on the stock market, but what we have seen too is that the decline in the market is usually of small volumes. Right now I’m not in a position to say whether people are still holding on to those funds in view of the other IPOs scheduled to come on or if it also has an element of the pandemic that we are experiencing,” Street Forrest told the Jamaica Observer in an interview.

While at least six companies have indicated an interest in having an IPO or APO in the coming weeks, including Alliance Financial Services and Pulse Investments, just last week Proven Investments Limited suspended its APO as a result of the heightened disruption triggered by the intensification of the COVID-19 pandemic.

NO BULL, NO BEAR EITHER

Street Forrest revealed that while she suspects that the decline may be influenced by a mixture of investors repositioning for IPOs and fears from the pandemic, the analysis provided by the JSE and its brokers when completed, will be able to shed light upon the matter.

“Other markets are declining and there may be an element in contagion in that too, however when you have small volumes pulling down a market, it doesn’t speak to a bull, and it doesn’t even speak to a bear,” she told the Business Observer.

Bull markets refers to markets that are on the rise and are economically sound, while bear markets point to a general decline in the stock market over a period of time amid widespread negative investor sentiment and fear.

In attempts to stabilise markets worry about the economic fallout from the pandemic, the Federal Reserve System — the US central banking system — cut its interest rates to near zero and announced it would purchase more Treasury securities to encourage lending to try to offset the impact of the COVID-19 outbreak.

However, according to CNN Business, as at Monday, March 16, the Dow Jones Industrial Average was down 12.93 per cent, falling by 2,997.1 points to 20,188.52; Nasdaq was down by 12.32 per cent, falling by 970.28 to 6,904.59; and S&P 500 fell by 11.98 per cent or 324.89 points to 2,386.13.

In light of this, Street Forrest added that companies that hold positions in US securities and similar assets may be affected.

CIRCUIT BREAKER RULE

According to Street Forrest, the JSE maintains its circuit breaker rule for occurrences like these, so that investors are able to assess their situation and be in control, in terms of buying or selling a stock.

Circuit breakers, a financial regulatory instrument that is implemented by stock exchange organisations, is used to prevent both speculative gains and dramatic losses within a small time frame, and stock market crashes from occurring.

When triggered, circuit breakers either stop trading for a small amount of time or close trading early in order to allow accurate information to flow among market makers and for institutional traders to assess their positions and make rational decisions.

With this rule implemented, Street Forrest advised young investors not to panic, but rather analyse the stocks they are investing in.

“Markets will go up and markets will go down, but the stock market is for long-term investment and [investors] would have seen the people who have weathered the 2008/2009 crisis have all come out on top. Many people may be interested in the low prices of stocks but investors who are new to the market should not panic, but rather analyse the long term viability of the company in which they are investing in,” she urged.

In subduing panic and regaining confidence, Street Forrest also encouraged listed companies to communicate with their respective shareholders during the COVID-19 pandemic.