Scotia Premium Growth up 37% in 2017

Scotia Investments was the top performing unit trust in 2017.

The Jamaica stock market enjoyed strong growth between 2015 and 2017 with several stocks recording more than 100 percent gains in each of the years. The vast majority of Jamaicans have not participated in the gains offered by the market.
The vast majority of Jamaicans have not enjoyed the benefits of investing directly in the stock market because they do not fully understand it while some are just scared to lose their money. Many investors have taken the hassle or concerns out of investing directly in stocks by investing in equity based unit trust schemes that have delivered better gains than those in the fixed income market.
For while the combined market index of the Jamaica Stock Exchange racked up gains of 43 percent in 2017, the top performing equity based fund, Scotia’s Premium Growth Fund recorded gains of 37 percent for their investors in 2017 on top of a 25 percent gain in 2016. The Scotia Fund displaced Barita’s Capital Growth Fund, the 2016 front runner that ended at number 6 in 2017, delivering a 21.5 percent return, down slightly from 26.7 percent in 2016
Many investors have benefit from the strong performance of the local stock market in a number of ways. Pension funds that a large number of Jamaicans are members of, hold shares of many companies on the Jamaica Stock Exchange (JSE). There are also insurance company funds that rely on the shares as part of their investment portfolios. The National Insurance Scheme also invests in these companies and many more Jamaicans benefit from the market’s performance than they may be aware of. Others persons invest through unit trusts to enjoy the growth in the market and thus lower their risk. How does this work?

Barita Unit Trust equity drop from #1 in 206 to 6th spot in 2017 with a gain of 21.5%

A unit trust is a pooled investment scheme that allows anyone without expert knowledge and time to invest in a diverse portfolios of most stocks, to invest in them and therefore benefit from the gains that the funds can deliver. The investments, which comprise local and foreign equities, bonds, corporate paper, government securities, real estate, among others, are professionally managed to optimize gains for the investor.
Investing in a unit trust is an attractive option as the portfolios are not only diverse but they also cater to those with or without an appetite for risk. A few of the benefits to be derived are tax free gains, depending on the portfolio, lower levels of market volatility given the mix of securities in each portfolio as well as other perquisites.
From year to year, the performance of investments in equity based unit trust funds may in part reflect the highs and lows of the economy, the percentage share of investments in the local stock market shares and fixed income funds. Most importantly, the management of the funds can make a big difference as can be seen from the varied performance of funds in Jamaica. Additionally, in recent years there have been new players entering the market and new products being offered, thereby creating greater diversity so as to capture new investors and a greater share of the market of the non-investing market.
At present, there are eight schemes managed locally, namely Barita Unit Trust, JMMB Fund Managers, JN Fund Managers, NCB Capital Markets, Proven Fund Managers, Sagicor Investments, Scotia investments Jamaica and  Victoria Wealth Management. All offer varied slate of funds denominated in Jamaican dollars and US dollars. Sagicor Investments has fifteen (15) portfolios, the most diverse of all, followed by Barita Unit Trust, JMMB and NCB, VM, Scotia and newcomer Proven.
Funds under management as at October 2017 stood at $229 billion with Sagicor still commanding the lion’s share with Scotia and NCB holding their double-digit portion while the others shared the remainder of the pie.
In the next article, IC Insider.com will look at the performance of the unit trust equities’ portfolio in 2017 compared to previous years to give investors a better view of the best performing funds.

Main market stocks can gain 40% in 2018

Chart of main market showing the market trading in an upward sloping channel with the market currently trading just below the upper resistance line.

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. Falling interest rates could add another 20 percent to gains during the year, bringing overall gains to be in excess of 40 percent.
Technical readings of the market have the main market heading initially to around 390,000 points or 23 percent ahead of the December close, for the all Jamaica Index, before resistance sets in. Before moving much higher, later on.
Currently, the main market is caught in a wedge and trading just below the upper end of channel that can be traced to late 2015. The wedge could hold the market in consolidation mode for a short time, a month or two, before breaking out, most likely to the upside. (See Chart of market index.)
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.
IC Insider.com projects that 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 Insider.com is forecasting rates on 182 days Treasury bill hitting 3 percent by the end of the 2018 first quarter. New listings could help move the indices in 2018, the likely impact is unknown at this point.
There are a number of other factors at play that are set to impact the market. Increasing employment is taking place with the highest number of persons employed in the country’s history. Attendant with that is the sharp fall in unemployment from more than 16.3 percent in 2013, to just over 10 percent in 2017. The annual net employment is growing around 30,000 persons per year and that could rise as the economy gains steam. 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 more 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 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 from such developments.
Lower interest rates will reduce cost for many companies and revaluation of the Jamaican dollar also means lower cost but could result in lower revenues in some cases. More listings on the stock market will result in increased fee income for JSE and brokerage houses, from increased trading volumes.
The TOP 10 stocks include a few surprises while there are others that sit just outside the top stocks that investors may still want to keep a keen eye on. Investors should be looking beyond 2018 as medium term gains beyond 2018 could be strong for stocks that will benefit from current developments long term.
The TOP 10 selection is selling well below the average PE of the Main market of the Jamaica Stock Exchange at just over 6.3 versus nearly 12 at the end of 2017. The hallmark of successful investing is buy low so one can sell high that is why the huge discount of the TOP 10 make them compelling choices. Successful investing is to work to be on top of the market so current sexy stocks are not the ones likely to be in the IC Insider.com’s list.
Barita Investments has moved more into fee based income and that is working well for them, with sharp growth, while net interest income stagnates. The prospects for continued strong growth in fee income continues with more investors seeking better returns than in the fixed interest market. The company should see a change in ownership soon and that could see a more aggressive approach to management that could optimize returns from exiting business and newer lines. Unrealized gains on investment ought to be factored into its earnings in valuing the stocks and that would boost its value considerably, the market is not paying attention.
Berger Paints is set to be a big winner with increasing sales coming from a buoyant construction sector resulting in increased profit and what IC Insider.com expects to be a healthy dose of dividend payments. It could become the next Carreras form a dividend yield standpoint but with growing profits. The company will benefit from lowering of overhead cost which was evident in 2017.
Jamaica Broilers continues to grow organically and from new business being acquired. Growth will continues as the Haitian market deliver greater returns form a growing market while the poultry demand in Jamaica continues to grow.
Caribbean Cement will benefit from lower operating cost, increased sales and a planned cut in financing of the lease which is said will cut hundreds of millions of dollars out of it cost that could come close to $2 per share per annum.
Palace Amusement Company, currently enjoying sell out cinemas with block busters hit is one of those unusual choices. It enjoys minimal trading but it could surprise on the upside if all goes well. Growth in the economy and increased employment will help to boost patronage going forward and will aid in profit growth as well.
JMMB Group put out outstanding Q3 results with a 39 percent increase in profit and strong gains in revenues, auguring well for 2019 outcome.

JMMB Group Q3 profit jumped 39% in 2018

The growth potential remains strong and investors in the stock will reap rich rewards down the road. Just one stock that requires patience. By the way Fees and commission income jumped an impressive 71 percent to $512 million in the quarter and 53 percent in the nine months, over the similar period in 2016 and should continue to do so going forward.
Radio Jamaica continues to disappoint with below expected revenues and profit. It could return to favour but needs to generate more income from advertising. This is one to accumulate for a payoff down the road.
The other three stocks, Sterling Investments, Grace Kennedy and Sagicor Group are undervalued and could deliver some decent returns to patient investors.
Below the TOP 10 are strong candidates to deliver decent returns this year and beyond, the list includes NCB Financial that is on a strong growth trajectory and recently listed Wisynco Group that should generate earnings around $1.10 for the 2019 fiscal year that starts in July.

Junior stocks set for strong 2018

IC Insider.com Junior Market TOP 10 stocks for 2018

Junior market stocks performed better than main market stocks in 2017 but that performance does not show in the gains in the market indices of both markets.
The Junior Market rose just 5.3 percent at the end of the year, down from a high of 31 percent in May.
The pull back of the index from its peak pushed the market into very negative technical readings. The first negative is a head and shoulder pattern, then the deadly cross where the short and medium term moving averages have fallen below the long term moving average and to that is an examination of the potential gains for individual stocks show that more two third of them are valued around or above the market average for 2017 earnings. That means that there is not much ammunition left to seriously push this market much higher based on 2017 profit out turn. Weighting down on the juniors is a series of company results that are not reflected positive price driven data.

General Accident could be a leader in the Junior Market in 2018 as they benefit from higher premium rates.

The reports include, Paramount Trading with strong rise in revenues for the November quarter but lower profits as administrative cost rise Caribbean Cream enjoyed a strong 18 percent increase in revenues but that could not overcome a rise in administrative and direct cost in the November quarter, resulting in profit falling from $19 million in 2016 to less than $1 million in 2017 and helped to push six months profit to $71 million versus $137 million in 2016. AMG Packaging revenues jumped 24 percent in the quarter to November but increased cost wipe the sales gains away and more to leave a profit of $10 million versus $18 in the prior year period.
Express Catering is continuing to deliver strong increased earnings but the stock is already well priced and so too is Knutsford Express at which revenues rose by 18 percent in the November quarter but at a slower pace than in the prior year. For the August quarter and profit grew by just 15 percent, with half year earnings per share coming in at 19 cents, full year earnings should come close to 50 cents but the stock is already a high price relative to the overall market.
The positives in the market is that the 45 days moving average is now over stretched and should enjoy some rebound sooner than later. Looking fully at 2018 thinks appear brighter with IC Insider.com pointing to 14 stocks including the IPO, Elite Diagnostics that could double in price and around 8 that could gain over 50 percent.

Elite Diagnostics could be in the Junior Market TOP 10 by the end of 2018.

Based on projected earnings for 2018, the average PE ratio suggests that Junior Market stock prices should grow by 36 percent. Technical readings have the junior market moving to 3,900 points, 43 percent higher than the end of 2017, before major resistance sets in.
The Top 10 Junior market stocks are taken from those listed at the start of 2018. The list therefore excludes Elite Diagnostics which should end in the top of 2018 best Junior Market stocks at the end of the year.
The list comprise some 2017 under performers, insurance companies that should benefit from increased premium income and in the case of Key Insurance reduced administrative cost. Paramount Trading is adding new product lines that should not only boost top line but with bottom-line growth, while Caribbean Producers and Dolphin Cove will benefit from the strong growth in tourism.

Jamaican dollar could hit $116 to the US

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Chart shows that the Jamaican dollar could go back to 120 to US dollar in 2018.

The rate to purchase the US dollar with the Jamaican dollar peaked at J$131.31 and closed 2017 at J$125. Talk to a number of persons they will tell you to use the inflation differential with the US as the measure to determine what the annual change should be. That may be true but it is just a guide not gospel.
But some say we have been there before only to see the local currency continuing on a runaway train. This time around it could indeed be vastly different. The fundamentals of the economy seems strongly in support of the local dollar that may well have exceeded an accepted competitive level, much lower than the 2017 lowest value. A number of positives have taken place. The fall in the price of oil on the world market has been a major savings and gone a long way to ease pressure on the Jamaican dollar. But other imports have fallen as well with the devaluation of the local currency while non-traditional exports have been rising fast. The BPO sector along with tourism, have done very well in earning added inflows. The net result is that the country’s current account has improved considerably at sustainable levels. The full restoration of Alpart’s operation means even more foreign exchange earnings for the country.
The Jamaican dollar lost value almost directly as a result of prolong period of excessive fiscal deficit that government ran for decades. Government is now running fiscal surpluses and that will keep inflation and interest rates low for a prolonged period and should result in a sustained value for the local currency. Importantly, with increased production of goods and services many Jamaican companies are enjoying a period of increased productivity that augurs well for increased competitiveness which lends support to the recent revaluation. Come 2019, a major portion of electricity generation will be at reduced rates as JPS switch to new sources of electricity generation that should add more to productivity.
Technically, the long term trend suggests continuation of depreciation of the dollar but shorter term chart shows a neck and shoulder pattern suggesting that the currency could correct lower to J$120 to the US while the upper trend line of the channel which was broken in 2014 could be broken if the positive trend in the economy continues, in such a situation the local dollar could fall below J$120 to the US with J$116 seems like a possible level. A look at the chart since 2016 suggests that the continuing weakness over several years may well give way to a break below the long term channel top during 2018, which may have long term implications for the local dollar, it could mean that the continuing decline in the value for several years may be arrested for some, provided the fiscal discipline is maintained.

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 Insider.com 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 Insider.com 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.

Econ growth to continue for Jamaica

The Jamaican economy shows several signs of growth for 2018 with many positives prominently exposed even as the Statistical Institute of Jamaica data shows growth on nearly 1 percent per annum in the September quarter.
Subsequently to the quarter, Alpart Alumina plant came into production and will add value to growth in the December quarter. Pace of tourism arrivals picked sharply in the post April period climbing in double digit in stop over arrivals and bode well for continued high levels of increase in 2018. Employment was running at a rate of 2.46 percent in July 2017 over the previous 12 months period, suggesting that the economy was probably growing closer to 2.5 percent level than the low pace the authorities suggest growth was at. Other data is suggesting much higher growth levels as well. Corporate tax collection is running 33 percent ahead of forecast and 42 percent ahead of collections to November 2016 over the prior year a strong indication that revenues and profits were increasing at a fast pace. GCT collection on local goods and services is up 8 percent about budget and a strong 15 percent ahead of the 2016 period and construction levy is 61 percent above budget and 66 percent over collections for the same period in 2016, a very good proxy of developments within the construction sector, while education taxes a proxy for increased wages and employment, end up 5.9 percent above target and 15 percent over actual collection in the period to November 2016.

New building going up in New Kingston

Sales for Caribbean Cement grew 15 percent to September last year and more growth is expected in 2018 with a surge in construction. The construction sector should get a boost from the start of the Harbour View to Portland road works and widening of the Hagley Park and Constant Spring roads in Kingston. Bank loans also grew in 2017 and should continue to grow in 2018 as interest rates fall and demand for loans to fund economic expansion climbs. The BPO and poultry sectors are expanding with more to come.
Treasury bill rates fell 29 percent from 6.56 percent to 4.83 percent, that level of decline, while this level of decline seems unlikely to happen in 2018, technical indicators are pointing to lower interest rates. IC Insider.com is forecasting rates on 182 days Treasury bill hitting 4 percent by the end of the 2018 first quarter.
There is increasing employment taking place and that should continue in 2018 as economic activity gains momentum, this will mean more spending and increased tax collection for government. Alpart’s resumption of Alumina production is a big positive for the overall economy, for increased government revenues and increased demand for local goods and services.

The mining sector to add to growth in 2018.

Importantly, there are several indicators that productivity has jumped sharply with major growth in production in many areas of production particularly in tourism and manufacturing thus offsetting by a wide margin the drag of inflation differential and revaluation of the local dollar. A strong 21 percent growth in non-traditional exports to October and expansion of a number of manufacturing companies is a good indicator of increased productivity as constraints on local consumption eases thus boosting demand. Revenue from total exports was valued at US$1.08 billion, 9.4 percent above the same period 2016 to October but will get a big boost this year with the reopening of Alpart alumina operations.
IC Insider.com expects the debt to GDP to fall towards 100 percent of GDP by the end of 2019 fiscal year as the government continues to operate with a fiscal surplus. Inflation should remain subdued, house prices will rise. IC Insider.com expect little or no new taxes in the 2019 fiscal year as revenues continue to be buoyant and Alpart operations to provide fresh new revenues.