More ammunition for big JSE surge

Bulls just watching but taking no action while stocks are setting up for a big explosion.


The cut in Bank of Jamaica’s overnight policy rate, by 25 basis points to 2.5 percent and further decline in short term Treasury bill rates on Wednesday, are big shot in the arm for Jamaican stocks.
With a 15 percent fall in BOJ’s policy rate in 2018 so far, stocks are lagging behind, with an increase of just 6.6 percent for the Junior Market and 4 percent for the main market. The accompanying chart shows the fall in Treasury bill rates being far greater than the rise of the All Jamaica Composite Index, an indication of a lot more upside for stocks based on the downward movement of interest rates.
Investors seem to be focusing more on profits in valuing stocks than on interest rates so far. That will change. The fall in the overnight rate, translates to a 9 percent rise in stock market prices, but rates seem likely to decline some more before settling off providing more ammunition for more gains in stock prices.
The latest Treasury bill auction also points to falling rates, with the 91 days bill declining to 2.71 percent from 2.818 percent in April, while the 182 days instrument average rate ended at 2.83 percent, from 2.979 percent in April. The 272 days Treasury bill cleared at an average of 3.08 percent with the highest allotted yield being 3.4 percent. In The three offerings of $700 million each, attracted a total of just over $7 billion, an indication of the high liquidity in the market that will have a positive impact on stock prices.
With the fall in interest rates, the PE of money is at the high end 40 times income and using corporate bond 12 times, but the PE ratio should be more tied to Treasury Bill rates and that PE is now in 30 range but stocks are mostly in the low teens and below.
Stocks have not been helped by some of the 2018 first quarter results, coming in a period when the market traditionally goes into a recess until late early summer. While profits for a number of companies may not have been electric for the 2018 first quarter and prices have not moved much except in a few cases, a look behind orders indicates that supply for a number of stocks is very limited. Stationery and Office Supplies have just two offers at the close of Wednesday, with less than 10,500 share on offer. Access Financial, Barita, Berger, PanJam Investment, Salada Foods to name some, have very limited supplies and others could follow suit in a short while, most investors don’t seem to be paying much attention to the tsunami that is on the way that will see prices move sharply higher.

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