One year ago, Jamaica confirmed its first case of COVID-19.
Since that time, there has been some recovery in certain sectors with most of the Jamaican economy still lagging due to the broader implications COVID-19 has had on the economy.
The Business Observer canvassed the investment community to gain a perspective on what has happened since March 10, 2020 and the outlook for the economy.
Renzworth Burchenson – Chief Executive Officer of VM Wealth Management
Business Observer (BO): The JSE index suffered a reduction of 478,000 points to a low of 379,000 points in March 2020. Since then, the market has been trading at the 400,000 mark. What’s your introspection of the market now and what are you expecting going forward into 2021?
Rezworth Burchenson (RB): The JSE index was due for some correction given the dramatic increases it had experienced over the previous five years. The circumstances that led to that much-needed correction were regrettable given the human and economic toll that have been exacted. We are starting to see improved investor appetite for equities, which has thus far been reflected in price increases for specific companies or sectors that have not only weathered the storm, but have also flourished. As vaccination becomes more widespread and restrictions less so, we believe that the JSE will move higher as investor and business confidence starts to rise.
Maurice Wright (MW) – Chief Investment Officer of Credit Union Fund Management Company
Prior to COVID-19 the equities market was on a phenomenal run. Since 2020 the market has been bearish. However, there are individual stocks that have done well and are likely to do well. Stocks that are counter-cyclical and those that have limited exposure to the tourism sector are likely to do well. Financial stocks that have limited exposure to credit or are adept at managing their credit exposure will do well.
How we manage the pandemic will largely determine how quickly and strongly the economy rebounds. We anticipate that as the country moves closer to herd immunity through vaccination in the latter parts of 2021 into 2022, the economy will rebound gradually, and the equities market will regain some lost ground.
Allan Lewis (AL) – Managing Director of JN Fund Managers Limited
Local and international asset prices reflect the outlook of investors. Whenever economic conditions in Jamaica become more uncertain, the value and volume of trading on the JSE change has declined considerably and stock prices have drifted. As the vaccine becomes more available, the uncertainty about the world economy will abate and market activity on the JSE will increase.
Steven Whittingham (SW) – Chief Operating Officer of the GK Financial Group
Market uncertainty due to the pandemic has certainly been a driver in the quick reduction of the market. The performance since has been driven by a myriad of factors. You have some companies that have done exceptionally well, such as GraceKennedy. The fundamentals behind some businesses have improved and the outlook is positive. On the other hand, you have companies whose core business have been and will continue to be adversely impacted in the medium term. Interest rates, though ticking up in other markets, remain relatively low, but the JMD exchange rate has been experiencing very high levels of volatility as it depreciates. I believe these examples of push and pull factors contribute to the ‘sideways’ movement you referenced.
BO: Bond prices and other assets suffered a decline in value especially for emerging markets like our own. The US federal reserve has kept interest rates near zero per cent with the BOJ’s policy rate at 0.50 per cent. What is your outlook on the fixed income market?
RB: While there was a precipitous decline in bond prices at the start of the pandemic, the extraordinary fiscal and monetary support offered by governments and central banks resulted in a quick reversal of those losses. That support is expected to continue in the medium term as the authorities try to maintain an environment conducive to a return to pre-COVID-19 GDP levels. This means that central banks are likely to keep interest rates at or near zero; however, this won’t negate volatility in the fixed income market as investors attempt to guess when that support will end.
MW: For 2021, we expect local interest rates to rise, given rate of inflation and the rate of USD investments. The disparity in the interest rates on JMD investments and USD investments provides an incentive for savvy investors to gravitate towards saving in USD instead of JMD given the traditional devaluation and the interest rate differential.
The Government has significantly reduced its borrowing in the local market, thereby creating space for the private sector to become a bigger player in the fixed income market. This has seen more corporate bonds in the market. For the corporate bond market to optimise its potential, the issue of illiquidity and transparent pricing will have to be addressed.
AL: International bond prices may exhibit negative returns in the medium term because interest rates are likely to increase as the world economy recovers. However, increases in interest rates and declines in bond prices are not likely to happen in a linear fashion. Instead, we would expect volatility to increase thus providing trading opportunities for institutional investors. In the same way that the pandemic was beneficial to many businesses while negatively affecting others, the return to normality will possibly have a similar impact.
SW: Despite the uptick in rates, I believe US 10-year yields are at the highest they’ve been in a year, I think interest rates will continue to remain relatively low globally.
BO: What’s your take on how the crisis has been handled and the general outlook for the economy?
RB: Our regulatory authorities’ response has been first-rate in ensuring that industry players were taking the correct steps to alleviate the challenges caused by the pandemic. Our economic numbers are still strong and will rebound as the global travel industry reopens.
MW: The Government has had to manage competing interests as it attempts to optimise the response to COVID-19. Any successful implementation requires appropriate response from the Government. However, the citizenry has a critical role to play in curtailing the spread of the virus. Unless these two responses are optimised, then the results will not be as we would have hoped.
Control of the virus is a prerequisite for the resumption of full activities of the tourism and other allied industries. It calls for periodic pain, discomfort, and inconvenience but in the end it will be worth it. Any other approach will only prolong the agony of weak economic performance.
AL: The Government should be commended for their handling of COVID-19. For example, the speedy lockdown of the country once the World Health Organization declared the pandemic was brilliant. The Government also enabled the widespread availability of testing facilities which also is important for the management of the pandemic. Perhaps the one thing I think the GOJ could have been more effective is the rules governing people entering the country.
SW: Governments everywhere have struggled with their response to COVID-19 and Jamaica is no different. Increased testing and what people refer to as ‘COVID-fatigue’ have resulted in increased positivity rates and we are at a really scary place. I don’t expect tourism to return to pre-COVID-19 levels until 2025 (especially with how important the cruise ship business was to Jamaica), but I do expect that it will start to pick up in 2022. This combined with rising oil prices means that we can expect to face some headwinds as an economy. There are bright spots such as remittances that have provided support for the economy in terms of FX and for the population in terms of spending power.