Flat performance of stock market in 2021
Many listed companies reporting losses and year-over-year contractions in earningsWednesday, April 21, 2021
BY DURRANT PATE
JAMAICA'S stock market has been largely flat since the start of 2021, with the combined index advancing by a mere 0.9 per cent between January 1, 2021 and April 9, 2021.
Although this growth is marginal, it does represent a significant improvement over the same period last year when the Jamaica Stock Exchange (JSE) index declined by 21.8 per cent. This decline came about as investor sentiment turned negative based on fears of the effect that a COVID-19-induced recession would have on corporate earnings.
The situation was compounded by the fact that the Jamaican economy contracted by 10.2 per cent in 2020, with most listed companies on the JSE reporting losses and year-over-year contractions in earnings. However, the outlook for the economy in 2021 is more upbeat, supported by vaccine- and stimulus-lead recovery in key source markets.
NCB Capital Markets, in a recent assessment on the performance of the stock market thus far, concluded that the COVID-19 inoculation programme now underway should allow for a normalisation of commercial activity locally.
Corporate earnings will likely remain under pressure
However, corporate earnings will likely remain under pressure for the current March earnings season, given the recent weekends lockdowns and 8:00 pm daily curfews to contain the recent spike in new cases. In spite of this, the economic recovery is expected to gain momentum in the second half of the year.
As such, the assessment is that corporate earnings should improve as the worst of the COVID-19 effects dissipates. Over 35 companies on the stock market are expected to report their financial performance and position for the March quarter and it is anticipated that earnings will continue to reflect the COVID-19 impact.
In its assessment, NCB Capital Markets indicated that companies like Carib Cement should benefit from the solid pace of growth in the construction sector. This is expected to continue, given the Government's intention to ramp up construction spend on public infrastructure for the 2021/22 fiscal year.
Stock market will continue to improve
NCB Capital Markets is of the belief that the performance of the stock market will continue to improve as the year progresses, especially in the second half of 2021. This is based on the current recovery in the Jamaican economy and the normalisation of business activity, which augurs well for corporate earnings and improved investor sentiment.
“Rapid distribution of the COVID-19 vaccine in key source markets and the expectations of rapid growth aided by the large government stimulus should help to kick-start the recovery in the tourism sector…The rebound in economic activity augurs well for the financial performance of companies listed on the stock market. Companies that depend on the tourism sector should fare better as the industry should begin what is expected to be a gradual recovery,” the report offered.
The start of a recovery in Jamaica's tourism industry will affect the financial performance of several companies on the stock market, such as those in the financial sector like Sagicor and Sygnus. This is in addition to companies in the manufacturing and distribution sectors such as Caribbean Producers, Wisynco and Jamaica Broilers benefiting from the resurgence in tourism.
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