Barita Insights: Weekly Newsletter October 22, 2020

Analyst Insights

In this week’s issue, we will take the knowledge we developed from our Hindsight and apply it to our Braintrust, uncasing our Foresight. This is particularly important when we examine the impact COVID-19 has had on our everyday life. The behavioural changes by both businesses and individuals will form the “New Normal”, as such, the way we think needs to adapt similarly. Given this, overarching investment strategies, opportunities and guidelines also require adaptation to allow for appropriate risk-adjusted returns. With that being said, we seek to examine the current and future state of Jamaica’s economic infrastructure and use that as our guiding pillar to establish and identify sound investment philosophies.

Responses For A Sustainable Future

Coming into 2020, Jamaica had successfully completed their Precautionary Stand-By Agreement (SBA) with the International Monetary Fund (IMF) which essentially created the economic backdrop for Jamaica to thrive successfully into the future. COVID-19 essentially halted the harvest of Jamaica’s years of sowing. Jamaica’s debt to GDP finally fell below 100%, averaged a primary surplus of 7%, improvement in financial inclusion and credit provision. Now, Jamaica has had to postpone numerous fiscal targets to combat the present effects of this global pandemic. Such targets include lowering our primary surplus to 3.1% to release an approximate J$17 billion in additional spending capacity. Despite higher than expected revenues to date, the COVID-19 bill has amounted to more than J$120 billion. To also aid in financing this surmountable bill, Jamaica has withdrawn US$520 million from the IMF, 100% of the quota allowed to Jamaica under the Rapid Financing Instrument (RFI). With other financings from multinational organizations, borrowing from the public through the reopening of different tenor papers, Jamaica has essentially utilized a high amount of debt to cover this cost. This, in effect, has resulted in Jamaica shifting is Debt to GDP target of 60% to March 31, 2028, two years later than originally planned. The effects of the measure taken by the government will support domestic businesses to continue operating successfully while creating the opportunity to introduce technology into their operations to further drive the quality of both goods and services.

On the Monetary side, the Bank of Jamaica (BOJ) has remained diligent and deliberate in their actions to ensure adequate levels of liquidity remains within the market. This is necessary as access the credit will be necessary to aid in reinvigorating the economy out of this trough. With our main source of USD inflows being weakened with the fallout in global tourism, the BOJ has restricted large USD capital raises by businesses, suspended the payment of dividends for shareholders with ownership percentages greater than 1% of a financial institution issued shares and maintained an accommodate policy stance.

Investing Playbook

Given the measures undertaken by the government and the central bank, there are direct and implicit implications on the potential pool of investible securities available to investors. With the equities market still within in bear territory, identifying opportunities will be paramount. Opportunities include a business that showcases revenue diversification, high levels of solvency, and strong management teams. These companies will be well equipped to recoup their financial earnings as the economic environment improves. There has been an increase in appetite for Additional Public Offers (APO) as a means of raising equity capital in a period requiring strong levels of solvency and working capital needs.

On the fixed income and alternative investment scope, the need for cash flow generation is paramount for both investors and issuers. This has resulted in savvy financers utilizing multiple structures to meet the demands of clients while making the structures appropriate for investors. Participating in offers by entities that have a quality collateral package, creditworthiness of the issuer, attractive terms of the structure adequate downside protection are the best securities to be positioned in. These types of assets can be found domestically by issued entities, also from different brokerage houses that create tailored products for their clients.

Finally, Unit Trust products continue to remain the golden egg in the investing community. This is because it allows investors to get exposure to multiple individual securities under multiple asset classes. The diversification, tax and cost benefits will be much needed in a period where every dollar matter. By investing with these parameters in mind, your portfolio will be well positioned to capitalize on the Foresight we’ve developed.

.

Written by Haughton Richards, FRM, FMVA, Senior Research Analyst

Conclusions

Opportunities include a business that...

Opportunities include a business that showcases revenue diversification, high levels of solvency, and strong management teams. These companies will be well equipped to recoup their financial earnings as the economic environment improves.

On the fixed income and alternative investment scope...

On the fixed income and alternative investment scope, the need for cash flow generation is paramount for both investors and issuers. This has resulted in savvy financers utilizing multiple structures to meet the demands of clients while making the structures appropriate for investors. Participating in offers by entities that have aquality collateral package, creditworthiness of the issuer, attractive terms of the structure adequate downside protection are the best securities to be positioned in.

Unit Trust products continue to remain the golden egg..

Unit Trust products continue to remain the golden egg in the investing community. This is because it allows investors to get exposure to multiple individual securities under multiple asset classes. The diversification, tax and cost benefits will be much needed in a period where every dollar matter.

As the global economy struggles to recover from...

As the global economy struggles to recover from the COVID-19-induced recession, its worst collapse in nearly a century, the IMF estimates that the global economy will shrink 4.4 per cent for 2020, which would represent the worst annual plunge since the Great Depression of the 1930s.

Keep Reading...

Let's Make Your Money Work For You