Great period ahead for stocks

Interest rates are falling and will drive stocks higher in 2018.

Last year was a great one for Jamaican stocks but an assessment of the market suggests that 2018 could be a grand year as well with overall price gains likely to be in excess of 40 percent.
Based on projected earnings for 2018, the average PE ratio suggests that the main market stock prices should grow by 26 percent and Junior Market by 36 percent. Falling interest rates could add another 20 percent to gains during the year, bringing them to be in excess of 40 percent.
Technical readings of the markets have the main market heading initially to around 390,000 points or 23 percent ahead of the December close, for the all Jamaica Index, with the junior market moving to 3,900 points, 43 percent higher than the end of 2017, before resistance sets in. Before moving much higher, the Junior Market must break through the 3,000 and 3,200 levels which were set when the market dropped after Lasco Distributors fell from the $7 level to below $4 late in 2017, helped by a fall in Lasco manufacturing.
Last year was a great one for Jamaican stocks, with 14 of the 64 ordinary shares of companies that were listed prior to the December new listings, rising 100 percent or more and 16 rising between 50 and 81 percent.
Although, the Junior and Main Market index rose just 5.3 percent and 51 percent respectively, at the end of the year, only 9 of the 34 listings at the end of the year recorded losses, while the main market recorded just 5 declining stocks.

Elite Diagnostics is the first 2018 IPO out of 9, that is expected this year.

Importantly, the average gains for the Junior Market is 79 percent and losses, averaging of 20 percent, for a net gain of 59 percent. The average main market stock rose 68 percent while losses averaged 22 percent, for a net of 48 percent.
2017 IPOS|The past year saw 9 new companies listing on the exchange, another 9 could list in 2018. If the trend of the 2017 IPOs with all ordinary IPO shares rising, repeats for 2018 IPOs, then investors can look forward to another round of profitable new offerings. Added to that, a number of last year’s listings should continue to deliver above average returns in 2018.
Stocks to grow in 2018| IC projects a better performance in the Junior Market Index in 2018 than for 2017 but the main market may be challenged to deliver a similar performance. Many of the main market heavy weights will find it tough to repeat the strong gains they enjoyed in 2017, if that is the case, their impact on the market index is likely to be less than for 2017. Another factor that could make a repeat of 2017 tough, is the movement of interest rates. Last year, Treasury bill rates fell 29 percent from 6.56 percent to 4.83 percent, that level of decline, is unlikely to happen in 2018, even as some of the decline in the latter part of 2017 is yet to be fully reflected in the prices of stocks to date and should positively affect prices in 2018. IC is forecasting rates on 182 days Treasury bill hitting 4 percent by the end of the 2018 first quarter. New listings could help move the indices in 2018, the likely impact on them is unknown at this point.

Growth in tourism is expected to directly impact a number of companies positively in 2018.

Increasing GDP| There are a number of other factors at play that are set to impact the market. Increasing employment taking place should continue in 2018 as economic activity gains momentum, this will mean more spending and increased tax collection for government. Alpart resumption of Alumina production is a big positive for the overall economy, for increased government revenues and increased demand for local goods and services, some of which are provided by listed companies. The tourism sector is enjoying strong growth, apart from increasing foreign exchange intake for the country, will have direct impact on Jamaica Producers, Dolphin Cove, Express Catering, Caribbean Producers and Sagicor X Fund. Jamaica seems to be going through a construction boom with several new buildings under construction, Caribbean Cement and Berger Paints should benefit considerably while Blue Power’s lumber segment should see improved sales from such developments.
Lower interest rates mean lower cost for many companies and revaluation of the Jamaican dollar also means lower cost but could result in lower revenues in some cases. More listing on the market means more fee income for JSE and brokerage houses, from increased trading volumes.

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