13 Junior Market stocks to watch in 2023

To make the 2023 ICTOP15, projected gains have to exceed 280 percent over the next 18 months at a projected PE of 22.5 times earnings. That level of growth is what the lowest on the list, Access Financial is projected to deliver over the period.
So great are the prospects of the Junior Market that IC Insider.com thought it important to highlight these additional companies for investors to see the great potential to make money over the next 18 months. This publication has never before put out such a list to start the year, in addition to the ICTOP15.
While the IC TOP15 2023 listings reflect 15 companies that show the greatest potential to be the top performers up to May 2024, a number of companies have the potential to do exceedingly well over the period but are likely to underperform those in the ICTOP15, even then, the future is not assured and some in the watch list could outperform projections and end in the top performers for the period.
The watch list shows that investors do not have to hit home runs to make decent gains in the stock market, but observation in the local market suggests that many persons may not have the patience to build gains over time.
These may or may not be the best companies in the market based on management, products or services and financial health, but they are undervalued and could deliver above average gains as well as pay attractive dividends in the 2023 to 2024 period.
The market has demonstrated that the ability to increase profits is the most important factor that will drive stock prices and is the primary area for investors to focus on going forward.
CAC2000 Projection EPS $1.
The company has the potential to do exceedingly well, especially with an upsurge in the construction of homes and hotels. But it is not without risk and disappointment from quarter to quarter as projects take time to complete, resulting in jerkiness in earnings. This is definitely a stock to consider from a longer time horizon and not one that can be relied on to deliver instant gains, but it could surprise.
Cargo Handlers
This company is not one that will be on every investor’s list for 2023, don’t let that dissuade you from taking a closer look. One of the smaller Junior Market companies and is highly profitable and holds over $500 million in cash funds and with add to it yearly.  The company serves one of the fastest growing regions of Jamaica with the continued expansion of the tourist sector that fuels above average economic activities and the BPO sector that lead to increased imports through the Montego Bay port where its operation is centred. Last year’s earnings per share were 77 cents and ICInsider.com is forecasting $1.10 for the current year, that should be enough to push the price towards $20 or more.
An important factor to consider is the cash that they hold which is available for investment in other entities that could add to improved profits going forward. By the way, don’t ignore the dividends they pay.
Dollar Financial came to the Junior Market in June last year and is now accredited by Bank of Jamaica to operate as a micro financial institution. For the nine months to September 2022, profit before tax amounted to $201 million, 257 percent higher than in 2021. Profit before tax for the quarter ending September 2022 increased a solid 214 percent to $70 million, an indication of what could be coming down the road.
The increase in profits was fueled by loans receivable of $1.2 billion to September 2022, an increase of $650 million or 125 percent over the  September 2021 position. Up to September, secured loans represented 72 percent of total loans and unsecured 28 percent.
The company recently raised $1.17 billion in debt financing and expanded the resources available for lending. These funds plus additional cash from profit to be generated provide more than adequate fuel for strong loan expansion that will result in continued above average profit growth. The company plans to use some of the funds raised to expand to the Bahamas and the Eastern Caribbean and capitalize Ultra Financier Limited, their asset based lender. The company could turn out to be exceptionally profitable if the resources are managed well to prevent heavy loan loss provisioning that could eat away at profits. ICInsider.com projects earnings of 35 cents per share for 2023 and that should be good enough to send the stock flying with gains of more than 200 percent.
Express Catering EPS is projected at 65 cents for 2023/4
The company started to benefit from the rebound in tourism but importantly the first half of the 2022 calendar year saw a decline in visitor arrivals compare to 2019, with the numbers for 2023 set to show a major increase over 2022first quarter numbers. The first quarter should be up over 50 plus percent compared with that of 2022. That will have a major impact on the revenues, with its entire operation within the Sangster International Airport. It is worth noting also that the company will have additional restaurants within the airport during the new fiscal year and this is going to add to revenues and profitability for the company.
With the stock price hovering around $5 per share this stock is selling slightly less than eight times earnings and shows the potential to do even better than the revenues and the earnings per share projections. With many Junior Market companies selling at PE ratios around 20 one should expect the stock to deliver a 200 percent rise in value over the next 18 months or so.
Fontana stock could gain 150 percent for the period. looking back, for the first quarter to September, revenues rose a healthy 26 percent and profit jumped 43 percent to $87 million. The projection is for revenues to continue to grow around the 26 percent level into 2023, with profit to rise to 80 cents per share for the year and $1.50 in the 2024 fiscal year ending June. With the stock priced around $9 it is nicely positioned for a bounce to provide an excellent return over the next year and a half.
The company is adding a new store in Portmore that should come into operation during the first half of 2023 and add revenues and profits to the business, but this may not be significant until the 2024 fiscal year. Expected growth in the local economy and a big bounce in tourism traffic will have a positive impact on stores in the western end of the country and deliver increased revenues and increased profit as a result. For the year to June 2022, profit was up 12 percent to $415 million from a 21 percent rise in revenues to $4.7 billion.
Image Plus Consultants – EPS 30 cents 2023 and $0.35 for 2023-4
The Image Plus stock failed to sparkle on listing in January, rising just 10 percent by the close of its first day on the market in heavy trading of nearly 12.4 million shares, the second heaviest traded Junior Market stock on opening, following an IPO. The price has now fallen below the issue price providing a good entry point for investors but has since bounced just above $2 with the release of nine months’ results to November. (See articles on analyzing the IPO and the nine months’ results.)
Jamaican Teas – earnings could hit 30 cents per share for the current fiscal year. Some input costs have declined following shipping facilities normalizing, resulting in lower shipping costs as well a reduction in some raw material prices worldwide. The forecast includes a sizable contribution from QWI Investments and a contribution from the real estate development that should see sales of its current development being concluded in the current fiscal year.
The group is expanding the product range for the local and export markets which will add to revenues and profits going forward.
The stock has seen increased buying from individual and institutional investors which is an excellent sign as it lends solid support for trading.

Knutsford Express

Knutsford Expressprojected EPS of $1 and $1.40 for 2024.
The company suffered, in a meaningful way, from lower revenues when business activities were severely curtailed with the advent of the Covid-19 pandemic in Jamaica which resulted in major disruption in the economy. In the latest fiscal year to May, revenues were back to pre-pandemic levels in dollar terms but profits lagged as increased costs grew faster than revenues, resulting in the 2022 full year results being 38 percent of 2019 but more than twice 2020.
For the August quarter, revenues rose 78 percent to $415 million and profit jumped from $9 million to $84 million. For the half year to November, revenues rose to $813 million from $473 million in 2021 with profit surging from $13 million after tax to $143 million. Third quarter profit rose from just $2 post-tax to $59 million. The Drax Hall Business Centre is contributing fully to profit with all available space occupied with several tenants already open for business and the company looking to generate income in the order of $100 million a year from the complex.
The company is benefiting from the upsurge in visitor arrivals both directly and indirectly from persons working in the industry.

Main Event returns to IC TOP 10.

Main Event – EPS is projected at $1.10 for 2023 
There is the potential for the stock price to gain 180 percent over the next 18 months. Profits for the nine months last year jumped 147 percent to $243 million over 2021 as revenues rose from $501 million to just over $1 billion dollars representing 85 percent increase over the previous year.  Revenues for the September quarter rose 147 percent to $602 million with profits for the quarter jumping a solid 332 percent to $104 million as profits rose by $95 million over the previous year, suggesting that the results of 2022 will be outstanding and that could carry over well into 2023.
What is worth noting is that revenues for the first quarter were just $203 million and for the April quarter $290 million, well below third quarter numbers. By contrast, revenues were $458 million in the first quarter of 2019 and $438 million in the second quarter, well ahead of those for the 2022 periods, this has a lot of significance for revenue growth in the first half of the 2023 year. The data show that there should be a significant pick up in revenues and profitability in the corresponding 2023 period and a major uptick in revenues for the year and profits. There is a bit of seasonality in earnings and this could have implications in 2023. The final results for 2022 will provide good guidance on this.
The lesson to be drawn from the numbers for the first three quarters of the year is that profit for 2023 will be up substantially up on the ultimate results for 2022. There is a level of uncertainty along with various developments in the local economy that makes it challenging to project with certainty the level of business that Main Event will undertake, this is the major reason why the stock is placed on the watch list. The final numbers could impact the stock price significantly.
Of note, the third quarter revenues are the highest record in the company’s history in the quarter. The company indicates that the increased business was due to added activity in its core business. The entertainment industry has seen a strong return to outdoor events and lifestyle experiences after a two year break.

Medical Disposables EPS is projected at 40 cents for fiscal 2023 and 70 cents for 2024
This company is not one to take at face value as they quietly build the infrastructure on which to deliver increased business going forward. The company is focusing on laying the foundation for growth in consumer products as increased business opportunities in the medical area slow. The dental area that is operated by the newly formed subsidiary has room for expansion outside of the western region and should be able to ride on the parent company’s infrastructure that currently exists in the next year or two.
The company in the meantime has increased expenditure to attract and keep talent within its employ to grow business, this development resulted in increased costs in the current fiscal year and negatively affected growth in profits for the fiscal year to date.
There is the possibility that more shares could be available in the market over the next year or so.
One on One Educational EPS is projected at 20 cents
The stock raced out the blocks on the fifth day of listing in the latter part of last year to hit $2.50 but the price has fallen to a low of $1.10 in December, with investors concerned that they may have lost a major client and the negative impact that may have on profit. The prospectus stated that in August 2021, 63 percent of the Company’s revenue came through Business to Business contracts and 37 percent through the Company’s end user consumers’ business line. Neither the 2022 audited accounts nor the first quarter results show any fall out of business, in fact, revenues almost doubled in the quarter with profit rising to $12 million before tax from a loss of $1.8 million in 2021. The price could be considered appropriate based on results released so far but as more results become available, the current price may appear to be a gift.
Funds raised in the public issue in 2022 net of loan repayment were earmarked for the development of technological infrastructure for expansion. Regardless, the major reasons to invest in this company is not its short-term fortunes or misfortunes but the major potential its operations have to deliver above average growth within Jamaica and overseas.
Spur Tree Spices EPS is projected at 40 cents.
The company recorded a 9.4 percent growth in revenues to $672M for the nine-months ended September 2022, from $614 million in 2021. Gross Margin increased from 31 percent in 2021 to 35.4 percent in 2022.
For the September quarter revenues slipped to $233 million from $247 but improved profit margin resulted in a gross profit of $75 million versus $73 million in the prior year. Profit before Taxation fell to $30 million in the quarter from $33 million in 2021, but climbed 30 percent to $119 million for the year to September compared with $91 million in 2021 and was just shy of the $124 million for the full year in 2021.
The company implemented investment projects to expand the Exotic Products factory infrastructure to double production capacity, purchase of building in Port Morant to establish a production facility and upgraded the Spur Tree Spices production capacity.
They also advanced $100 million to purchase a controlling interest in Canco, an ackee canning company, and if combined with Exotic Products could result in a major jump in production and improved efficiency. They also appointed Massy Distributions agents for regional distribution.
This company has a lot of promise but the valuation placed on the stock ran ahead of results as such improved results in 2023 are unlikely to be reflected fully in the stock price and provide above average growth for the stock but it could be good enough to deliver a reasonable gain that investors would be normally pleased with even if it does not put it in the top ranking of stocks. Additionally, it has growth potential going beyond 2023 that could help deliver above average long term growth.

Stationery & Office Supplies recording record 2022 profits.

Stationary and Office Supplies should deliver gains of 250 percent for the period. The company has done exceptionally well in 2022 and is one of the top performing stocks for that year, gaining 140 percent as a result of very strong profit performance during the year that came from an incredible 60 percent increase in revenues that should end close to $1.8 billion for the year and $2.3 billion for 2023. The company generated a profit of $250 million for the nine months to September that should reach $360 million for the full year and just over $550 million in 2023.
ICInsider.com does not expect the performance to be at the same level in 2023 but sees continued attractive growth in earnings that should put it at about $2.20 per share, up from around $1.35 per share in 2022.
The business continues to increase from local and overseas demand. Information is that a deal was struck with a Trinidad company to sell their furniture in that market in addition the possibility exists that they could be getting into other Caribbean countries to add to the organic growth of the business. There is the possibility for acquisitions of small businesses during the year that could benefit from synergies within the company and deliver above average returns from such investments. Investors should not ignore the possibility of a stock split that could provide additional spice to make the performance of the stock an attractive one.
Finally, the company is well managed and financially healthy with limited debt and increasing shareholders’ equity.

Jamaica’s economy looking great for 2023


The Jamaican economy could grow by more than 6 percent in 2022, with continued growth in tourism and the Alcoa Alumina plant back in production in late August and could lift the December quarter growth above the 5.9 percent that Statin reported for the September quarter. The strong second half year growth should carry over into 2023, coming from an average increase of 5.73 percent for the period up to September and will be boosted by the expected continued strong resurgence of the tourism sector in 2023, barring unforeseen adverse developments, along with the impact of production from the reopening of the Jamalco Alumina plant that will add quite a bit to growth going into the first half of 2023.

Mining to contribute to GDP gains in 2023

Inflation is still not entirely under control yet, but it peaked in 2021, with the average for 2022 running close to the upper end of the central bank’s target of 4 to 6 percent. Developments that should help decrease the rate include world oil prices that have fallen substantially from the over $US120 experienced after the Ukraine war started and are now around US$80 a barrel. Prices of some other commodities are reduced and others could follow as a push of interest rates by several developed countries is set to tighten economic activities and trim demand. A tighter labour market, locally, could put upward pressure on wages and prices, but the tighter monetary policy from last year could hold prices down for a while.
Growth is not only expected from the above two areas. Assuming fair weather conditions, Agriculture, the star performer in the economy for several years, should continue its contribution in 2023. The sector will be helped by growth in tourism that feeds off the industry. The BPO sector seems poised to continue to add to growth as well as the construction sector, with continued growth in housing, road construction and the need for factories and warehousing space. There may well be a lull in the sector with the two south coast roads coming to completion in 2023: the Harbour View to Portland leg and the May Pen to Williamsfield leg of Highway 2000. The Montego Bay perimeter road should take over but may not fill the gap. This may not happen until the Montego Bay to Ocho Rios dualisation commences and is well on the way.
Why is tourism so important? Data shows that for the first quarter in 2022, stopover arrivals were 28 percent below arrivals for 2019, with the June quarter off by 3.3 percent, but September to November increased an average of 12 percent, which means that the first quarter in 2023 could see a 50 percent increase over 2019 and much more over 2022 in the first half on 2022.
Tourist arrivals into Jamaica are now running at record levels since August 2022. Data shows the country enjoying four consecutive months of arrivals exceeding similar months in 2019, the previous best period. Airport passenger movements through the Sangster Airport are up an average of 12 percent for the September to November period.

Growth in tourism is expected to be big in 2023

If the recent trend continues, it would mean that stopover arrivals should be in the order of 3 million next year, up from 2,680,920 in 2019 and would exceed those in 2022 by a solid 20 percent, with the winter months enjoying much higher levels of growth as shown above.
The strong rebound in tourism traffic in the first half of the year, compared with 2022, will contribute to above average GDP growth in the first half but will also result in a significant jump in revenues and profits for some companies and the government. This will have significant implications for the foreign exchange market with significantly increased flows, especially in the year’s first half. This development could also impact interest rates as BOJ may no longer have to lend much support to the local currency using high interest rates.
ICinsider.com don’t see interest moving higher and most likely will start to decline before midyear, with inflation within reach of the BOJ target of 4-6 percent in 2022 and with interest rates seeming to peak at 8.46 percent from April 2022 and remaining at the 8 percent level since based on 182 days Treasury bills.

Jamaica’s labour market has tightened and could pressure inflation in 2023.

Unemployment at 6.6 percent in July is expected to fall in 2023 towards the 5 percent region as more workers will be needed to man the economic expansion. This could mean wage increases could rise above normal to retain or attract new workers.
But all the above is good news for the private sector overall, that should see increasing demand for goods and services.
The banking sector showed loans growing at an annual pace of 12 percent up to September 2022, data from the Bank of Jamaica shows up to $1,096 billion, but increased loan rates may be negatively affecting some areas. With what could be a year of reducing interest rates engineered by BOJ, there could be even faster loan growth in 2023 than in 2022.
Remittances in 2022 appear they will fall short of the US$3.5 billion generated in 2021 and could come in at just over $3.4 billion for the year, reaching $2.84 billion to October. It may again slip marginally in 2023 since the big surge that took it from $2.4 billion in 2019 to the $3.5 billion level.
Net International Reserves. Jamaica’s Net International Reserves are in a healthy position with a jump of $75 million to $3.85 billion in November, data released by the Bank of Jamaica shows, an improvement over October at $3.77 billion. This year’s November balance is at the highest monthly balance for 2022 but is down US$150 million from the end of December last year with a net of $4 billion. Data from the Bank of Jamaica shows a US$100 million growth to Mid December 2022 that would push the net to around US$3.95, just shy of US$4 billion. Daily trades in the forex market after mid-December suggest a continued buildup of the reserves that should push it over the US$4 billion mark by the end of 2022, with the exchange rate for the Jamaica dollar appreciating 152 to the US dollar at the end of the year.

Road construction could slow growth in the sector in 2023

With the significant rebound in tourism, a resurgence in the Alumina sector and relatively stable remittances and BPO sectors, the country should enjoy record foreign exchange inflows in 2023.
Developments on the foreign exchange front could result in greater stability in the exchange rate for the local dollar. Investors should not be too surprised if there is some revaluation, especially in the first half.
The entertainment and transportation sectors seem poised to get a shot in the arm and benefit from the rebound in tourism, increased employment in the country and the general buoyancy in the wider economy.
The present government will be in power for three years at the end of August, but the last public opinion polls indicate a huge lead over the opposition party; with such a lead, the government is in the driver’s seat as to when elections will be called. But the opposition party could start revving up their machinery, so there could be a fair bit of noise to contend with. Local government elections are due in 2023 and barring some significant negative development these elections appear as if they will proceed as planned. If the opposition does well in these elections, it could result in the political heat being turned up a notch or two. If they don’t things will quiet down as the odds favour the government going the full term.
The above are positive developments but investors cannot ignore the impact that the war in Ukraine has had and could have going forward as well as concerns about the covid19 problems in China and how that could affect the world economies.

Reports to follow – Interest rates and the stock market. Outlook for stocks in 2023. Top 15 stocks. Stocks to watch in 2023.

Jamaica’s NIR jumps

Jamaica’s Net International Reserves jumped $75 million to US$3.85 billion in November data released by the Bank of Jamaica shows. The amount is an improvement over October which ended with NIR at US$3.77 billion after a US$33 million fall from September a month that enjoyed a rise of $57 million and August with an increase of US$90 million following a fall of US$144 in July.
The balance at the end of November this year is at the highest at the end of any month for 2022 but is down US$150 million from the end of December last year with a net of US$4 billion which was up $100 million over November 2021. The data suggest that the NIR could match the amount at the end of 2021, with December historically a month that brings in surplus foreign exchange inflows into the country.
With tourist arrivals expected to jump sharply in the first four months of 2023 over 2022 which was about a third lower than in 2019, inflows could be up some fifty percent over 2022 from that sector and could boost the NIR for the first quarter.

Whether Jamaican interest rates?

Add your HTML code here...

Interest rates on the last government of Jamaica Treasury bills averaged 8.27 percent on the 182 days instrument in November, the highest level since December 2012 at 9.12 percent.
The rate is well over the trend since 2013, which suggests it should be just over 3 percent on a longer term. In 2013, the rate did not remain at its peak for long and continued decreasing gradually. It rose again to 9.11 in March 2014 for a brief period and fell to 6.99 percent by January 2015 and moved gradually down to under two percent by 2018.
While the Bank of Jamaica has only recently pushed the Overnight rate to 7 percent the 182 days, Treasury bill rates were around 8 percent from April this year when the average was 8.46 percent and moderated slightly downwards since an indication that the market has determined that these rates are at or close to the peak. The decline in rates should start in the first half of 2023 and could adjust downwards gradually, as was the case in 2014.
The attached chart shows the trend-line slopping from the left side of the chart and reaching around two percent, with the current rates being well over trend, an indication that the recent hike since last year is not sustainable and could start to decline not too long from now with inflation rate now closer to 7 percent and falling.

BOJ’s several missed inflation forecasts

Bank of Jamaica has done an awful job of telling the truth about inflation in Jamaica since early 2021 and the bank’s management of the tools to combat it. The impression given is that inflation continues to run at nearly ten percent per annum for most of this year, but that is false. According to data released by Statin since January, inflation is running at just under 6.5 percent per annum, not the ten percent the bank is consistently mentioning in its reports and recently reduced to 9.3 percent.

BOJ interest cuts overnight rate.

It is not that interest rates should not have been increased, the question is the extent of it and how long it may go on. It also means that they have been applying the incorrect dosage of interest rates medicine to inflation that has subsided since the start of the year. The reality is that the terribly high inflation rate was up to September last year, not in 2022, although they were some high months this year but not as high as the comparative periods last year.
Come December or January, the country will be told that inflation has suddenly plummeted to the 6 percent level because the bad periods for 2021 are no longer in the data set. The decline will have had little to do with Bank of Jamaica’s interest rate hike, but as sure as night follows day, the central bank will be praised for its action in bringing the inflation rate sharply down. That of course will be far from the truth.
The reality is that just about every public forecast by the country’s central bank since the beginning of last year proved to be wrong. It started with a letter written to the Minister of Finance in March last year in defending the maintenance of the 4-6 percent target for three years. In May of that year BOJ stated that while inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with the consensus forecast for a fall in commodity prices. Immediately after that statement, the inflation rate declined in the following two months.
The classic case of getting wrong is BOJ’s letter to the Minister of Finance in 2021. 
“I am recommending that the target for the 12 months point to point in the spread as measured by the percentage change in consumer price index remains at 4 percent to 6 percent for the next three fiscal year,” this is an extract from a letter written to the Minister of Finance by Richard Byles head of the Monetary Policy Committee (MPC ) of Bank of Jamaica dated March 29th 2021, the letter went on to state “the targeted lower rate of inflation is not advisable as achieving this lower rate will require tighter monetary policy which will restrain the anticipated recovery in the Jamaican economy and impair the government’s debt reduction strategy. “
By May of 2021, the central bank changed its position, informing the nation that tighter monetary policy would be put into effect and that the overnight rate would be raised when they meet in September, an action which has taken from 0.5 percent to 1.5 percent.
Inflation data indicates that the dark days of higher inflation started to overshadow the country from November and December of 2020 compounded by the March inflation and was well embedded from May onwards suggesting the higher rates should have commenced from then, but the focus on point to point inflation disguised the true extent of what was going on. It appears that they are set to make the same error again, this time by focusing overwhelmingly on the point to point inflation since last year rather than looking at the trends since late last year and in 2022.
Interestingly, although the central bankers raised interest rates over the period to 6.5 percent the economic growth of the country exceeded the bank’s forecast and raises questions about their original assessment that rising interest rates would have trimmed GDP growth significantly.
The issue for this publication is not whether the Bank of Jamaica should raise rates it was clear from the earliest 2019 that the bank erred in dropping rates as low as it did at the time thus removing the incentive of Jamaicans to save in local dollars and instead encouraging them to switch to U.S. dollar investments. If the Bank of Jamaica in a matter of a few months got the inflation outlook so wrong what assurance can there be that the increase rates will not over impact the economy and create mayhem within the financial system?
Jamaicans should therefore be very concerned whether the Bank of Jamaica is correctly interpreting the data that they are churning out or not and how much credibility can be afforded them in directing the country’s monetary affairs. Longer term the bank is still holding to the 4 to 6 percent target, which suggests that sooner than later rates will have to be reduced to prevent the rate from slipping under the 4 percent bottom.
They stated in their MPC release that “while headline inflation at June 2022 may be lower than expected, the Bank prefers to see evidence of a definitive fall in commodity prices, consistent with global consensus forecasts, and a reduction in core inflation before moderating the tight monetary policy stance. The Bank expects to see this in the September and December 2022 quarters and with it, a fall in inflation expectations. Of course, this depends on tensions between Russia and Ukraine not escalating.”
The MPC report goes on to say, “inflation is projected to fall within the target range by the December 2023 quarter. This is two quarters later than previously projected. Consistent with the consensus forecast for a fall in commodity prices and the Bank’s overall monetary policy stance, and absent any new shocks, annual inflation is projected to range between 9 per cent and 11 per cent for the remaining months of 2022. Inflation is projected to fall to single digits in early 2023 as long as the conflict between Russia and Ukraine does not escalate and inflation among Jamaica’s trading partners continues to fall. In addition, the Bank’s baseline forecast assumes that the public’s expectation for future inflation will fall during the second half of 2022.”
The above is not what is taking place currently.

BOJ pushes interest rate higher

Bank of Jamaica which increased the overnight rate over the past year by 550 basis points to 6 percent in August has pushed the rate to 6.5J percent in its latest decision.
According to the Central Bank, while “the key drivers of inflation and other economic indicators are trending in the right direction, conditions have not sufficiently solidified to ensure that inflation is sustainably on a downward path.”
“Bank of Jamaica is also concerned about the slow pace at which interest rates on local currency deposits and loans have responded to its policy signals. In a context where the Bank’s policy rate has increased by 500 basis points (bps) between end-September 2021 and end-July 2022, the weighted average deposit rate offered by deposit-taking institutions to the public has increased by only 37 bps.”
“ In addition, the pace of monetary tightening among Jamaica’s main trading partners has accelerated. On 21 September 2022, the Federal Reserve Board raised its interest rate target by 75 bps, 25 bps more than anticipated by the Bank. The Fed also changed its forward guidance to signal that interest rates could rise to 4.4 percent by end-2022 and to 4.6 percent by end-2023, compared to its previous median projections of 3.4 percent and 3.8 percent, respectively. This more aggressive stance could result in US dollar assets becoming more attractive relative to those denominated in Jamaican dollars, which could cause capital outflows, prompting a faster pace of exchange rate depreciation and, consequently, a derailment of the Bank’s efforts to manage inflation.”

BOJ is wrong as inflation keeps falling

Jamaica’s central bank (BOJ) was granted independence in 2021 but they seem to be making a mess of it. For much of last year they fiddled around telling the country that inflation was well under control and that it would remain within the band of 4-6 percent for two years, that’s before they found out that it wasn’t.
They informed the Ministry of Finance in April last year, why they could not increase interest rates as that would trim economic growth. In May, they made an erroneous statement that inflation was still getting higher when the underlying data was suggesting that it was improving and close to their target.
According to BOJ inflation was 11.8 percent in April and would get worse over the next two months.
ICInsider.com advised that they were wrong and that inflation was running close to the target since October and therefore was not getting worse but was improving.
According to the BOJ after its meetings held on 12, 13 and 18 of May 2022, “the Monetary Policy Committee (MPC) noted that inflation at April 2022 of 11.8 percent was higher than the outturn at March 2022 and represented the ninth consecutive month that inflation has been above the Bank’s target range of 4.0 to 6.0 percent. While inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with consensus forecast for a fall in commodity prices. This means that the public should start to see lower inflation rates each month, beginning in the second half of 2022, as long as tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners falls.”
The latest data from Statin is once more confirming what we stated last month and casting serious doubts on the authority of the central bank.  Statin’s latest reading on inflation is 0.3 percent for May with the year or year rate down to 10.8 percent, which is down 100 basis points from the April reading. The monthly rate for May is the lowest since November last year with zero inflation and April with negative 0.5.
Since October last year, some seven months ago even before the interest rate hikes took effect, inflation was just over 6.4 percent per annum. With an average of 0.535 percent per month. For the period from December last year, the average rate is 0.547 percent per month, but since January it is running at 5.46 percent per annum.
The rate is moderating, but the country is not out of the woods as yet. There are some hopeful signs for the coming months. The rate of exchange of the Jamaica dollar is now officially J$153.45 to the US dollar compared to around $156 up recently, this will cut the cost of imports and will contribute in a major way to cutting imported inflation. The recent increase in interest rates will also slow down economic activity.
The inflation trend since October last year, suggests BOJ has overdone the interest rate hike and the rate should start the downward trek before the end of the year.

BOJ interest rate folly

Bank of Jamaica (BOJ) unwarrantedly, increased the policy interest rate, they offer to deposit-taking institutions on overnight placements with BOJ by 50 basis points to 5 percent per annum, effective 20 May 2022, with a view to continuing slaying inflation that is well past its peak from September last year.
According to a release from the BOJ, “Inflation at April 2022 of 11.8 percent was higher than the outturn at March 2022 and represented the ninth consecutive month that inflation has been above the Bank’s target range of 4 to 6 percent. While inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with consensus forecast for a fall in commodity prices.”
The above misses the critical point, with inflation improving since October last year with an average rate of 6.8 percent, just over the BOJ target range. The central bankers fooled around for a major part of 2021 in defending the excessively low interest rates when inflation was getting out of hand. They are erroneously focused on crawling inflation over a twelve month period rather than seeing what was taking place under their feet currently.
They are now making the mistake in the opposite direction when inflation is in decline and close to their 4 to 6 percent band. Available data shows the worse of the inflation was between May and October last year, then running at an average rate of nearly 15 percent per annum, since then, it has been just under six percent per annum, with little help from BOJ as the tighter monetary policy started in late September is just about now likely to start having the effect.
The recently harsh hike in interest rates is not the tool really meant to tame inflation but one more in keeping with reducing demand for US dollars.
According to the Central Bank, “The measures are expected to cause interest rates on deposits and loans to rise further, making savings in Jamaican dollars more attractive relative to foreign currency assets and borrowing in Jamaican dollars more expensive. They are also expected to reduce the demand for foreign currency, leading to a relatively more stable exchange rate.

BOJ interest cuts overnight rate.

The measures are also expected to cause demand in the economy to fall and, consequently, limit the ability of businesses to pass on price increases to consumers.”
It is difficult to be driving a vehicle backward over a long distance to get to one’s destination, accordingly, BOJ should not be setting policy based on what inflation was in the past but on what is likely in the future. Past inflation hikes are irrelevant to future rates once the rates are tamed, as the data now shows. Accordingly, BOJ recent big jump in rates is a mistake and should have been implemented early last year and over several months. The last three rate increases amount to applying drastic medicine after the ailment is well on the way to being cured.
This publication has written in the past disagreeing with the excessively low rate and how it was reducing the value of savers’ money while starving pensioners and small savers of badly needed income. There always is a need for a balance, either way, BOJ has gone too far and far too late.

Alliance get licenses back

Alliance Financial Services (AFSL) which has been acquired by Sagicor Group got back licensed to offer cambio and remittance services at approved locations a release from Jamaica’s central bank Bank of Jamaica advises. 
The release from the central bank stated that under the new ownership structure, AFSL has satisfied the Bank’s due diligence requirements.
Alliance was acquired after Bank of Jamaica suspended the company’s licenses to operate the above services under the former ownership.

Jamaica’s stock market in a good place

The stock market cannot be looked at in isolation from what is taking place in the wider economy, John Jackson said in an address he made recently to the Kiwanis Club of Kingston on the state of the Jamaican Stock Market.  There are many positives occurring that could have a good impact on stocks and the stock market but there are a few negatives taking place currently he stated.
Jackson went on to list a series of positives and negatives about the market and the economy. The economy is bouncing back from the major dislocations caused by the closure of the country’s borders in March 2020, resulting in the closure of the important tourism sector and billion dollar loss of inflows. That seems to be behind us now, although not fully based on traffic passing through the two international airports that were lagging behind 2020 and 2019 up to February this year, there are sounds that there may be big improvements in the March numbers. Remittances had record increases, well over the inflows for 2019 in both 2020 and 2021, with the latter up by $1.1 billion over 2019 flows to hit the US$3.5 billion mark.
Employment is at record levels, bettering the pre-pandemic high. The tourism industry was not at full employment when those numbers were compiled, so the situation will be even better when the next set of figures are released up to March, this year. The construction sector is enjoying record performance and absorbing quite a bit of the previously unemployed but higher interest rates could slow down the growth in the sector. There is continued expansion in the BPO sector that is employing a large number of Jamaicans and pulling US dollars into our coffers.
Inflation has risen sharply worldwide and Jamaica has not been spared the impact, resulting in the Bank of Jamaica hiking interest rates sharply from an artificial low up to August last year.
On the positive side, central government has reduced debt to GDP below 100 percent and that is freeing up resources to spend on badly needed capital improvement as well as in social areas that were neglected for decades, with a target of 60 percent of GDP by 2026.
Against the above economic developments and the hope that the Ukraine war and inflation will not derail positive economic benefits for Jamaica, the future of the stock market is good, as economic policy favours low interest rates and growth in GDP that will be positive for profits and stock prices. It should be noted that the number of investors has swollen from just fifty thousand to over 200,000 over the past four years. That growth is creating a broader and more liquid market for investors.

Growth in tourism expected in 2019

The Junior Market is at record levels surpassing the record high of 3,665 points in August 2019, since then, the market closed at over 4,200 points but the Main Market continues to lag and is still below the March 2020 level just before the collapse of stock prices.
In the past, investors were pulled into the market only to see it fall out of bed. This time will be different for some time to come due to cutting of the fiscal deficit, with more to come and a vast improvement in the balance of payments. These will allow for more consistency in policies and less volatility in the market. The market is also more diversified with a wider array of choices than in years gone by.
Investors should remember that the two critical factors driving stocks are interest rates and profits. Rising profits and stable interest rates will ultimately drive stock prices higher. The reverse is true. The key is to buy companies with consistent profit growth, as that demonstrates good management.
Profits for most companies released recently have been good with many of the stocks undervalued. Investors need good information to assist them in buying stocks.
Investors who want to buy stocks should favour undervalued stocks and stay away from ones selling well ahead of the average of the market, using the PE ratio as a guide. They should focus on companies that have a good record of consistent growth to make for a successful investment. Use the market data put out by ICInsider.com on earnings, PE ratios, net asset value and dividend payments as a guide in selecting stocks, these are proven to work that is why our Top10 stock selection delivered a 64 percent growth for Junior Market stocks in 2021.