Analyst Insights
S&P Global Ratings affirms Jamaica’s Rating and Outlook After an 18% decline in Q2 GDP, On December 8th, S&P Global Ratings affirmed its B+ long-term foreign and local currency sovereign credit ratings, its ‘BB-’ transfer and convertibility assessment while maintaining its negative outlook for Jamaica. By any measure, this is a phenomenal performance by a country that just 7 years earlier was teetering on the edge of a fiscal cliff. The S&P Rating action took into consideration the significant economic decline, which materialized due to the COVID-19 pandemic. According to the agency, the pandemic, the economic contraction it has fostered, and the deterioration in public finances and external accounts drive the negative outlook. Notwithstanding, the agency highlights the government’s commitment to resuming fiscal consolidation as a positive and expects growth to continue in 2021 and 2022. The implied, yet the resounding message is that institutions matter to strong economic performance, and ultimately, to risk asset performance.
The Inflexion Point is High
Let’s begin to put this into perspective. Once we compare our local economy and the stock market to its international counterparts, particularly those in the developed world, we can all agree that Jamaica tends to lag. So, let’s take the US for example, Year to Date (YTD), all the major US stock indices have outperformed – totally forgetting the March sell-off. Of course, the comparison isn’t an apples-to-apples scenario since, well, the US is the global reserve currency so the central bank can print money like there’s no tomorrow once inflation remains subdued. So, in the Jamaican context, we don’t have the benefit of extreme liquidity. Is this a drawback for the stock market? Well, it depends but our thought at this moment is no. The recent S&P rating comes on the heels of perhaps the worst period Jamaica has faced in a long time from both a health and economic perspective – remember, we almost completely stopped the economy. Tourism, our bread and butter, for the most part, been in the doldrums since. However, the UK has already started its vaccination process, and the US has begun its own distribution among frontline workers. Our tourism industry depends significantly on these two nations, which are in the lead for vaccination, and therefore further means we can indeed start to think about a timeline for a definite end to the COVID-19 virus and consequently when a rebound could likely materialize.
The Stock Market Cornucopia
If we follow the logic that a vaccinated USA and UK is a positive for the Jamaican tourism industry and couple this with S&P’s rating affirmation then our stock market, which has lagged those in the developed world at more than -20% YTD decline, is perhaps poised for a rebound anytime now. So, why the lag then?: This is where we get into market psychology—our market moves, not just on expectations but on historical performance, sentiments and fear. However, the intelligent investor, having ‘read the tea leaves’ front, runs the crowd to buy very good assets at very steep discounts to their fundamental values.
The Intelligent Investor
Now, throughout this tumultuous year, there have been consistent questions about the shape of the recovery. We’ve heard V, U, L, W, K? We are sure there are more. Within our local context, we believe what really matters is what we’ve noted above, concrete indications of our nation moving towards a recovery, however fragile at this point. We believe the vaccination (its distribution) and an S&P rating which is not a downgrade, are just two things that have materialized this past week that provide a filip for cautious optimism for a recovery in local risk assets. The role of the intelligent investor is, therefore, to “follow the breadcrumbs” and look beyond the market psychology. In fact, it would be wise to go in the opposite direction of the market, particularly at this moment. In the last few weeks, we’ve seen the combined market appreciate marginally, and now we’re down -23.14% YTD coming from a range of about -25% to -27%.
We believe the inflexion point upwards draws near and now is, therefore, an excellent opportunity to invest in the market. The Barita Capital Growth Fund provides direct exposure to the local market, investing in companies we believe have a combination of an experienced and strategic management team, solid balance sheets and a poised to catapult as we enter into the recovery
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Written by Awah Muirhead, Senior Investment Strategy Analyst |
Conclusion
On December 8th, S&P Global Ratings affirmed its B+ long-term...
On December 8th, S&P Global Ratings affirmed its B+ long-term foreign and local currency sovereign credit ratings, its ‘BB-’ transfer and convertibility assessment while maintaining its negative outlook for Jamaica. In short, the important point to note from the update is that S&P maintained its previous rating for Jamaica.
If we follow the logic that a vaccinated USA and UK is a positive for...
If we follow the logic that a vaccinated USA and UK is a positive for the Jamaican tourism industry and couple this with S&P’s rating affirmation then our stock market, which has lagged those in the developed world at more than -20% YTD decline, is perhaps a cornucopia of returns
We believe the inflection point is nigh and now is therefore a great opportunity...
We believe the inflection point is nigh and now is therefore a great opportunity to invest in the market. The Barita Capital Growth Fund provides direct exposure to the local market, investing in companies we believe have a combination of an experienced and strategic management team, solid balance sheets and a poised to catapult as we enter into the recovery.
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