Apr 2004 Financial News

Jamaica Stock Market plunges after three-month bull run

Apr 14, 2004

Observer Business Reporter
Wednesday, April 14, 2004
http://www.jamaicaobserver.com/magazines/Business/html/20040413T230000-0500_58460_OBS_STOCK_MARKET_PLUNGES_AFTER_THREE_MONTH_BULL_RUN.asp


The Jamaica stock market plunged yesterday, with stocks shedding 4.3 per cent of their value in a major correction of the three-month bull run in which stocks have appreciated nearly 50 per cent since the beginning of the year.

While the JSE main index dropped by 4,395.47 points or 4.21 per cent, stocks of Jamaican companies plunged by 8.97 per cent or 9,295.38 points to close at 94,329.89 points in one of the worst single-day performances of local stocks in years.

But market analysts differed as to whether yesterday's decline was mere profit-taking, or a more fundamental correction of a market which had gone awry.

Leo Williams, the managing director of Jamaica Money Market Brokers Securities, had the more optimistic perspective.

"It is just normal profit-taking and investors sitting to hear what is in the budget, and see if they should be in a defensive mood," says Williams. Finance minister Dr Omar Davies will this week spell out how he plans to fund the budget for the fiscal year 2004/05.

Williams cited the five stocks that advanced yesterday as evidence that investors were still entering the market.
"In cases where there are fresh people in the market, optimism continues, with the six stocks," he said.

But Nigel Goffe, senior investment consultant at Barita Investments, said that the market was over-priced and that he was "not surprised" by the decline.

"Based on historic earning of businesses, the market is getting fully priced," he said. "Our market is always cautious during budget time."

At trading yesterday, 22 stocks declined with five plummeting by as much as 15 per cent, the maximum allowed in any single day under the JSE rules. These were Seprod, Lascelles, Jamaica Producers, Gleaner and Berger. Six stocks advanced with only Hardware & Lumber and Pegasus advancing significantly.

Volume at 20,888,878 units was high, and so was value at over $211.26 million.

Paole Arscott, Victoria Wealth Management deputy general manager, yesterday tried to capture the market psychology that could have led to the precipitous decline. Profit-taking, she reasoned, could lead to investor speculation which in turn could lead to wide-scale stock dumping.

"It is really a matter of investor confidence, whether or not the market correction will stabilise and not see a full reversal of the bullish trend."

Well-known financial analyst, John Jackson told the Business Observer that yesterday's decline could have been triggered by the weekend's less-than-positive results posted by Jamaica Producers. He said that investors were still factoring JP's sale of its JMMB shares early last year into the price of the stock.

"The fall in Producers stock may have had an impact on the reason why the decline was across the board, because the results released could not support the price that the stock traded at," said Jackson. "People were buying the stock with the assumption that the earning should have been factored into buying the stock."

According to Jackson, those stocks that "are selling above the average price earning ratio of the market based on 2003's earning" were over-valued and were the ones that were "severely affected" by yesterday's retreat.
In trading:

. The JSE Index declined by 4,395.47 points or 4.21 per cent to close at 99,867.67 points.

. The JSE All Jamaican Composite Index declined by 9,295.38 points or 8.97 per cent to close at 94,329.89 points.

. The Jamaica Select Index declined by 306.87 points or 9.93 per cent to close at 2,783.31 points.