Interest rate hike sparks market sell-offSunday, October 24, 2021
By Kalilah Reynolds Media
Following the central bank's monetary policy decision to raise interest rates, companies like National Commercial Bank (NCB) and Scotia Group Jamaica have started to see a decline in the value of their stocks.
This movement in the market has dragged down the overall value of the Jamaica Stock Exchange (JSE) main index, as NCB and Scotia Group still make up a large component of the overall index.
“Since the BOJ's rate hike, we've seen further selling off of stocks from persons exiting their positions. Persons are rushing to get their exit, which is pushing down the index,” noted young investor and business writer at the Jamaica Observer David Rose, while speaking on Taking Stock with Kalilah Reynolds.
“NCB still has a significant contribution to the overall JSE index, [so] as NCB continues to go down we see that kind of pull-down effect as well, which in turn affects the JSE Index, Sagicor Select Funds Financial, and so on,” he explained.
NCBFG stock price hit a three-year low of $121.03 last week. Similarly, Scotia's stock price fell as low as $33.02 last week, it's lowest since November 2016.
According to Rose, the main causal factor appears to be linked to an investor sell-off surrounding the desire to try to rebalance their portfolios and try to take on more risk-free opportunities. The young investor surmised that many are likely to take their Jamaican dollar investments and put them into US dollar investments.
Meanwhile, founder and CEO of Profit Jumpstarter Keisha Bailey said the price declines could represent a good buying opportunity.
“This is what we call classic near-term panic. Investors are panicking about the outlook for these companies, but it could be a very good buying opportunity for you,” she said.
“Where the prices are at, in comparison to historic levels, it could be a bargain. For persons who have been looking at these companies and have been admiring them for a while, this is now a great entry point,” she added.
Additionally, Bailey noted tha,t for institutional investors, the weight of portfolios with NCB and Scotia are going to fall. As a result, she said portfolio managers may need to buy those weights back up to bring them back into a target level, which could also lead to a buying opportunity on the institutional side.
In contrast, even though the Junior Market is supposed to be impacted more by the interest rate hike, that market has remained buoyant. In fact, the Junior Market index is up 24 per cent year to date and continues to rise. At the same time, there's only been one listing on the Junior Market since the year started which was FESCO.
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