Things are setting up nicely in the investment world for 2022, following two somewhat lousy years for the JSE Main Market that fell 22.6 percent in 2020 and rose a mere two percent in 2021, but technical reading is not very positive in the short term, but that is likely to change in the second half. The opposite is true for the Junior Market that is caught in a triangular formation that suggests a big break higher to take the market into record territory and most likely over the 4,000 index mark.
The genesis of such optimism is ro0ted in a number of positive developments in the wider economy and for some individual companies. Results of companies for the 2021 third quarter were some of the best seen for some time, with many doing better than in 2019, before the advent of the Covid19 that resulted in dislocation pressured the bottom line of many and for some opportunities that helped the topline and the bottom line.
Those developments bode well for profits and stock prices in 2022 when the economy is expected to recover from the sharp decline in 2020. Remittances for 2021 are expected to be over US$600 million more than for the record $2.9 billion intakes in 2020 and the tourism industry is expected to be back at 2019 levels or close to it but is expected to far exceed that in 2020 all things being equal. More growth is expected from exports and the BPO sector, accordingly, the country should see significant additional foreign exchange inflows in 2022 than at any time in its history. Bear in mind that the signal of how well the country is doing in international trade, the net international reserves rose US$104 million in December over November to close the year at $$4 billion and is up fromUS$3.1 billion at the end of 2020. The early signal of tourism performance shows December 2021 behind a similar period in 2019 by just 24 percent compared to a fall of 45 percent for all of 2021 versus 2019.
Unemployment will dip further in 2022 as most of the economy is expected back to near normal operations that will add to the spending power of Jamaicans and help to lift revenues.
In the financial sector, profits were on the mend and bankers are lending again with good growth taking place in the loan portfolio of some financial institutions.
Tourism expected end 2022 close to that of 2019
In 2021 banks and financial institutions with a few exceptions were pressured with the majority ending the year with a fall in price. These institutions will benefit from the rise in interest rates that will result in increased net interest income. The JSE financial index, a measure of the performance sector in 2020 down 6.5 percent for the year. The star performer was by far the Junior Market with gains of 30 percent with five stocks gaining between 95 and 266 percent.
In the second half of the year, inflation raised its head and the Bank of Jamaica hiked interest rates in response, so far there are no visible effects on the stock market, even as higher interest rates tend to negatively affect stock prices.
On the fiscal side, revenues for 2021 were healthy bettering the 2020/21 fiscal year b some distance. The effect is that the fiscal deficit should return to the 90 percent range again during 2022. Fiscal year 2022/23 should be much better and there could be some tax relief granted. It could be reduced GCT or an increase in the tax threshold. But it should stir the government into doing a comprehensive tax reform thus eliminating many of the minor tax categories. Whether there is tax relief or not, what is clear is that there will be no new taxes for the coming fiscal year.
In our 2021, ICInsider.com stated the period ahead, “seems set to be the year of surprises as many stocks that suffered badly in 2020 could be making a major turnaround in revenues and profit, while some that may not fully recover could start showing good signs of returning to normalcy.” That is exactly what happened during the year with strong gains from the likes of Caribbean Producers, Express Catering, Main Event, Medical Disposables, Radio Jamaica, Stationery and Office Supplies and Dolphin Cove, all of which suffered major setbacks in 2020.
The economy is clearly on the mend but there are still lingering concerns with the inability to seriously reduce the spread worldwide as well as in Jamaica. The latest Omicron strain is an example that we may not be out of the woods as yet. The ongoing vaccination of the population in Jamaica although not going as fast as planned continues apace and could support general positive expectations for the near term.
Importantly, PE ratios are rising as investor demand pushes values up as selling wanes at the end of 2021, the average PE ratio of the Junior Market suggests a 60 percent rise for the market while the Main Market is put at just 20 percent, with companies in the latter at a greater stage of developments than the former.
The country should see a full recovery from the important tourism sector during 2022 and this publication expects greater flows of foreign exchange with tourism back to normal and remittances holding close to the trend of 2021.
Coming soon – Junior Market could jump 60% in 2022
