Stocks and the elections

Investment company Mayberry foresees a “sexy” stock market emerging by year end, based on government’s enlarged budget, which the company’s officers describe as positioning for the general election.

“We now have a clear runway to the general election and since the incumbent seems to be under a little pressure they have to come [strong]. I think we are going to have a good year, and I hope you do too,” said Chairman Christopher Berry during an investor briefing on the quarterly performance of Mayberry Jamaica Equities Limited. Berry is also executive chairman of the parent company, Mayberry Group Limited.

A good year for stocks would break the four-year decline of the Jamaica Stock Exchange, JSE, the main market index having shed around $400 billion in value since 2019, according to JSE and SimplyWall.st data.

The main market is currently capitalised at over $1.73 trillion, while the broader market encapsulating, main junior and foreign currency stocks, is valued at around $2.05 trillion, based on Financial Gleaner estimates from data for February.

The proposed $1.3 trillion national budget for the upcoming fiscal year, starting April 1, is one-third heftier than the current budget at $1 trillion. It’s due to be debated in Parliament.

Gary Peart, CEO of Mayberry Group Limited, said “a budget that size” makes the probability of a general election occurring before the end of the budget year “pretty high”.

The prime minister can call an election before the constitutionally due date of September 2025.

Berry said delaying the election to 2025 would only serve to have two record budgets. “Now that would be wonderful,” he added, ostensibly referring to the implication that it would lead to larger capital spending into 2025.

“I would be surprised if they go the full term by 2025. But if they do, then the stock market will look very sexy going into next year,” Peart replied.

The upcoming budget proposes to increase recurrent expenditure by 16 per cent to $769.9 billion, excluding debt. The Holness administration proposes to increase the capital budget by 7.0 per cent to $80 billion.

DEBT MATURITIES

Debt servicing will climb by 75 per cent from $280.6 billion to $491.2 billion jumps, due to larger-than-usual debt maturities emerging later this year.

Parliamentary elections have a “statistically significant” effect on stock prices in the Bahamas, Barbados, Jamaica, and Trinidad & Tobago, but no effect in the Eastern Caribbean and Guyana, according to a landmark study by the University of West Indies pro -vice-chancellor Justin Robinson published in the Global Business Review in 2017.

Robinson found that in the case of Jamaica, “the stock market appears to disapprove of the People’s National Party” but didn’t give details in the available abstract.

The last general election was in September 2020 and was won by the Jamaica Labour Party. That year, the JSE main index ended lower at $1.7 trillion in market capitalisation but it was greatly affected by the onset of the pandemic. In the rout created by the health crisis, the main stocks fell from $1.9 trillion in value in March to $1.4 trillion in April.

More recently, the market has been subdued due to rising interest rates that have evolved from moves by the central bank to clamp down on inflation by hiking its policy rate. Stocks have seen a steady decline from $1.7 trillion in 2022 to $1.4 trillion in May 2023. Higher rates resulted in investors shifting funds from the stock market towards less risky investments such as Treasury bills.

Dan Theoc, the head of investment banking at Mayberry, said high rates on short-term money can contradict the intention of reducing inflation.

“The BOJ cannot sustain having 30-day treasury rates at 10 per cent per annum. It just doesn’t make sense. How can you be trying to get your inflation rate back to 4 to 6 per cent, while keeping your interest rates at 10 per cent on 30-day money? Unheard of. Won’t work. Not sustainable,” Theoc declared during Monday’s briefing.

“You will start to see those rates come down to four or five per cent in the next 12 months,” he asserted.

Mayberry Jamaica Equities is an investor in equities on the Jamaican stock market. The company itself is also listed on the main market of the JSE. The MJE fund had a net asset value of $17.2 billion at year ending December 2023, or $14.40 per share. The MJE stock trade traded at $10.89 on Tuesday, which is about 27 per cent below its most previously disclosed net asset value of $14.87 at February month-end.

MJE’s top five holdings in December were gaming and lotteries company Supreme Ventures, which comprised 54 per cent of the portfolio’s value; supplier of goods to the hospitality market Caribbean Producers Jamaica, at 8.2 per cent; poultry company Jamaica Broilers Group, 7.8 per cent; renewable energy producer Wigton Windfarm, 3.7 per cent; and banking conglomerate NCB Financial Group, at 2.9 per cent.

MJE made a net loss of $2.4 billion in 2023, having spun from a profit of $5 billion profit a year earlier. This performance was attributed mainly to $2.3 billion of losses booked on investments in associates.

“The results are the results,” said Peart. “The longer you wait to buy is the more I can buy,” he said.

The Jamaican stock market was twice assessed as offering investors the best returns among the world’s stock markets, in 2015 and 2018. Even at the lowered $1.7 trillion in market cap, the JSE Main Market still towers above its $233 billion value a decade ago in 2014.

“The world is not going to stop turning because interest rates are a little bit higher than the last 20 years,” said Berry in response to questions during Monday’s briefing.

“If you see something cheap, especially companies growing and showing that they can grow consistently over time and trading below where they normally trade, then now is the time. Get them!” he said.

steven.jackson@gleanerjm.com