400,000 and Rising: Turbulence Recedes But Risk Remains | Barita Insights | May 3, 2021

The Jamaica Stock Exchange (JSE) as at the end of April 2021, crossed the 400,000-index level. This is a first since the market entered
bear market territory (a 20% decline from its previous peak). Relative to the April 2020 levels (the trough of the bear market), we are
now 13.5% higher than where we were a year ago. While still below the 509,916.44 level as at December 31st, 2019, the market is
above the lows of April 2020 and now surpassed a key level, a level which we surpassed in 2019 when the index went on to increase
by 34.3% and recognized as the fifth best performing stock exchange in the world. Given where we are now, what we’ve been through,
and the cautiously optimistic runway ahead, assuming we’re on a plane, should we remove the seatbelt light in the cabin with respect
to the JSE? Let’s consider a few factors before determining an answer.

Economic Developments
Jamaica’s economy plunged to its worst post-independence contraction, with GDP declining by over 18% in Q2 of 2020 calendar year.
This was a self-inflicted wound as the government undertook extraordinary measures to curtail the spread of the novel COVID-19
virus, a global pandemic. This health crisis quickly became an economic crisis as global governments acted in similar fashion, now
being dubbed as “The Great Lockdown”. What this means for a small open economy like Jamaica is that we would be operating
below our usual levels of productivity. Considering our dependence on hospitality for foreign exchange and employment, as well as
being a key component in our economic framework, we were materially impacted by these health measures. Curfews and social
distancing measures restricted domestic activities across industries and such , livelihoods were disrupted at all levels.

Economic Policy
Policymakers were swift and aggressive in their response to the pandemic. Implementing programs such as CARE, leveraging the
Disaster Risk Management Act, remaining accommodative in monetary policies through targeted measures and postponing of
economic targets to allow for higher quality of social spending by the government. At the heights of the crisis, one would question if
the policymakers were doing enough, and today we can say, yes. This is supported by Jamaica’s economy growing quarter over
quarter (measured by GDP), without a material fallout in our economic framework and measures such as debt-to-GDP. An
unprecedented crisis required an unprecedented response.

Market Events
At the onset of the crisis the Bank of Jamaica (BOJ) restricted payments of dividends by financial holding company designates (FHC)
and deposit taking institutions (DTIs) which was a major blow for our market that is materially weighted towards these entities (on a
market-capitalization weighted basis). We saw postponements of multiple public offerings, reduced levels in market transactions (both
in value and volume) and lower levels of financial performance for our listed companies. These factors induced a risk-off sentiment
and as such, the market was largely flat for months.

Better than Expected
However, throughout 2020 and to date, it was observed that the economy and market exhibited some resilience. Jamaica received
three rating affirmations from global rating agencies, our GDP growth has been on a positive trajectory since its precipitous decline,
unemployment declined from its crisis high of 10% to a pre-COVID level of 7%, capital market activities resumed with APOs and IPOs
alike, the BOJ removed its dividend mandate restriction, policymakers were able to establish sound economic policies such as the
independence of the BOJ, transaction volumes and values have begun to increase, and company performances have begun to
improve materially (especially in the Manufacturing and Distribution sector).

Conclusive Thoughts
We must consider what is ahead of us, with vaccines being distributed globally, light is at the end of the tunnel. However, the New
Normal is still being formed and caution cannot be thrown to the wind. The savvy investor who remained true to their investment thesis
and steered headfirst into the crisis has been rewarded. Balancing the risks is important however, as such , it is not time to remove our
seatbelts. Prudent and strategic positions in quality companies should continue to be the focus. Investors all have a ‘fear of missing
out’ and as such, we recommend reaching out to your licensed investment advisor at Barita to re-engage your investment portfolio and
identify opportunities, for which our Investment Playbook continues to showcase some of these opportunities.