INVESTMENT experts at Sagicor Group Jamaica (SGJ) and its investment arm, Sagicor Investments Limited (SIL), are cautioning Jamaicans against being foolhardy in expecting short-term gains from recent developments which serve as positive indicators that the economy is moving in the right direction. They, however, believe that there are opportunities for investors to realise returns if they are willing to wait through some challenges now present in the economy.
Commenting on Jamaica's recent credit ratings upgrade from Standard & Poors and Moody's, Jodian Aris, who heads Sagicor Investments's research and strategy team, noted that the ratings upgrades are a result of the country's management of debt and its post-COVID-19 recovery, driven mainly by the strong rebound in tourism and mining. She added that the improvement in ratings is indicative that the agencies are anticipating that the Government of Jamaica will continue to reduce its sovereign debt while creating an enabling environment for growth over the next three to five years.
"A rating is really more of a long-term outlook as opposed to something in the short-term, so it points to the fact that they're seeing some amount of stability and they're expecting improvements in the medium to long term," she explained to Jamaica Observer.
She further outlined that the credit ratings upgrade augurs well for the Government's fiscal position as it can secure loans at better rates, and this could result in savings. The reduction in debt payment allows the Government to increase spending in areas such as education, security and health care.
Still, while pointing out that the country's "credit quality perception" has improved, Aris said that individuals may not feel the immediate impact in their pockets.
"So it wouldn't be on the individual level that you'd start to feel some type of impact, like the ability to get loans at a lower rate. Over time you'll have that trickle down in terms ofâ€¦that impact on the quality of life for persons,'' she stated.
When asked if the country can expect to see increased foreign direct investments (FDI), due to the ratings increase, over the next two years, she highlighted that a number of factors must be taken into consideration, such as inflation and high interest rates.
"If it is that we're coming from a period of high interest rates, which means that we're in a restrictive situation, you may have a slowdown coming [behind]. So even though it is on theory and likely that a credit rating means greater investments, if it is that you're also in a space where economic activity is slowing down then you may not see as much [FDI] as you'd expect," Aris stated.
She, however, does not rule out that there are possibilities for FDI.
Consequent on Standard & Poors upgrading Jamaica from a B+ rating to BB-, private sector leaders expressed to Sunday Finance that they are hopeful for increased FDI.
Aris's colleague, Sagicor Group Executive Vice-President and Chief Investment Officer Tracey-Ann Spence chimed in that inflationary pressures and high interest rates are not unique to Jamaica but rather a global phenomenon affecting the country's major trade partners, the United States and United Kingdom. She added this has affected business decisions at the micro level.
When asked how she would advise businesses to navigate the high interest rate environment, Spence noted that businesses should consider taking advantage of the equities market "to offset the high interest rate burden, [but] it is a delicate balance". Though she admitted that companies listed on the Jamaica Stock Exchange have seen their valuations reduced in the last year, the index still offered businesses the opportunity of having cash to support their operations.
"In spite of the higher interest rate environment a lot of companies have posted improvements, especially coming out of COVID. So even from just an operational standpoint and being able to manage the current challenges, we've seen improvement in most companies," she told Sunday Finance.
As at close of trading on Friday, November 17, the JSE Index declined year to date by 41,238.31 points or 13.11 per cent
On this note, Aris argued that this could serve as an opportunity for people who want to invest in companies to realise not only returns in the form of dividends, but also capital growth.
"The challenge is that we're coming from a buoyant period in 2018 and 2019 so persons have this short-term expectation, when if you look at equities for what they really are, you're buying into a company [for the long run]," she said.
Aris also commended the Bank of Jamaica on its efforts to cauterise inflation and the move to take pre-emptive measures to avert any capital flight.
Again pointing to investment opportunities, she noted that investors should be conscious of their risk appetites and their ability to "wait it out".