JAMAICAN stocks fell for a second year in a row in 2023, shedding almost $90 billion in value across both the main and junior markets as investors, stung by a decade high inflation and interest rates, stayed away from equity investments. But at least one broker has expressed optimism that things could start turning around on the market later this year.

Data from the Jamaica Stock Exchange (JSE) show that at the end of 2023, the market capitalisation, that is the combined value of all companies on the main market of the Jamaica Stock Exchange, was down by $80.3 billion when compared with the prior year. At the same time, the market capitalisation for companies listed on the junior market was down by $8.6 billion. The declines mean companies listed on the two indices shed a combined $88.9 billion in 2023, reversing all the gains it made in 2022 and them some. It was the biggest combined loss posted by the JSE since investors lost $414.5 billion in 2020 as markets were stung by the economic downturn induced by the COVID-19 pandemic in that year.

And the downturn was realised after stocks recovered in the prior two years. In 2022, the JSE gained $84.5 billion, while in 2021, the market recovered almost half of the losses it realised in 2020, posting gains amounting to $204.5 billion. The biggest gains realised in the last five years was in 2019, when the main market index recorded its best close of 509,916.44 points and the value of listed companies rose by more than $557.6 billion. Stocks are yet to recover to pre-pandemic levels. There value is still down $125.3 billion from where they were in 2019.

“What would have happened last year in the equities market is that, naturally, prices would have been marked down on certain securities over time which would have resulted in losses over time,” Ramon Small-Ferguson, deputy CEO of Barita Investments, told the Jamaica Observer as he reacted to the losses accumulated in 2023. Small-Ferguson, who is also the managing director of Barita Unit Trusts Management Company Limited, is set to become the CEO of Barita Investments.

“I think at the heart of it is a shift in investor sentiment,” Small-Ferguson continued. Providing historical context, he told the Caribbean Business Report that most of the gains seen in prior years was down to low interest rates and high liquidity at a time when the Government’s appetite for debt was waning, leaving investors with money which had to find somewhere to go. The JSE’s efforts to grow investor participation also brought hundreds of thousands of new investors into the market and they, too, were buying.

But he pointed out that, with inflation rocking almost every country across the globe coming out of the pandemic in 2021, central banks’ responding by raising interest rates “at the fastest pace in a long time in some countries” left a sour taste in the mouths of investors, and their sentiments turned south, which has impacted stocks negatively.

“The fact that rates would have gone from near zero to 7 per cent over a short space of time, that fairly dramatic and sharp set of increases would have caused a seismic shift in how people allocate their investments. So people would have said ‘I am not buying any more equities and the new monies that I have, I will be deploying them into fixed income’ at 12 and 13 and 14 per cent, rates that I have not seen in 10, 15 years,” Small-Ferguson argued. He said that led to a reduction in the number of buyers for equity.

“Additionally, the number of new opportunities in the equities market would have reduced materially as well. Last year, we had one IPO which we [Barita Investments] would have done, which is One Great Studios,” he pointed out, arguing that negative sentiments around the market creates a cycle of more negativity.

“People are averse to losses and when an asset class has a difficult period, it takes some time to jump-start confidence in that asset class again.

“The much higher interest rate environment sees certain institutional investors favouring fixed income right now, and naturally, behaviourally as well, if someone looks at an asset class and you look at one year, and you write an article saying the JSE has lost $90 billion in value, and when you see an article coming out saying there’s going to be two more years of dry period for the JSE, those kind of things are going to colour the perspective of the retail guys. They are not going to read and say ‘bwoy, this company’s earnings gone up X per cent. They are going to say, ‘I not putting no more of my money in equities until 2025, because I see a picture of Marlene Street Forrest, who’s suppose to know about these things, and she is saying this thing is not going to come back until 2025, so I am not buying anymore stock, I don’t care if its a Heaven IPO, I not investing my money.”

Another element impacting investor sentiment is the multi-billion-dollar fraud at Stocks and Securities Limited (SSL) which came to public knowledge in January last year. Already, there are whispers that another entity could be facing similar problems which could cause investors, especially retail investors to grow nervous about investing.

Small-Ferguson said, apart from fixed income, those with money are turning to other havens for investing.

“Real estate has been a main staple for investors with larger pools of capital who can afford those bigger outlays… and people have continued to make investments in real estate last year, both directly and indirectly, through funds and other vehicles where people can invest in these types of things,” he pointed out.

Still, he is optimistic that things can start turning around for the equities market this year, though the head of the JSE in a Gleaner article on Wednesday said it could take up to two years.

“My perspective is that if we look at the macroeconomic environment, Jamaica is in an unprecedented state, a positive state. We are poised to grow in ways we have not grown before. We have a lower debt-to-GDP. We just got two credit updates, and the overall indicators for Jamaica as a sovereign, from somebody on the outside looking in, has gone up exponentially, relative to 10 or 15 years ago. With that in mind, that is an excellent backdrop against which to do business and in that context, it is my view for companies generally in Jamaica and for companies listed on the JSE, that they will be in a unique position to take advantage of several opportunities during this calendar year that will redound to their benefit profit-wise. I am a believer in the fundamentals, and I believe the fundamentals will improve,” Small-Ferguson argued.

He pointed out that already, there are indications that interest rates are set to come down in the United States and the Bank of Jamaica may follow suit as long as other factors allow it to start cutting rates, though he stayed away from saying when this might happen this year.

“I also believe that, generally speaking, liquidity conditions may improve. Pension funds are accumulating a whole lot of cash and other investment vehicles that have structural cash inflows, like insurance companies which get premiums every month, pension funds that get payments every month. These large institutional pools of capital are swelling with cash and they will need to allocate at least a little bit of that cash to assets like equities.

“And if the fundamentals are reasonable, the [economic] environment in Jamaica is as good as it has been, if rates start to level off or go down a little bit, I believe the possibility that some of that money could go to work in the equities market.

“My understanding, from conversing with some of my peers, is that there are several very strong attractive companies that are sitting on the sidelines, waiting for the right time to list and this year may just be that time and that in and of itself could bring new opportunities in the space which investors could get excited about,” Small-Ferguson said.

He said the recovery will come with a lag; meaning, it will take some time to filter through.

“But I do believe the equities have a shot at reversing some of the losses it would have incurred in 2023, certainly, and we could see this year being a foundational year for the start of another rally in years to follow,” he noted.