Local inoculation programme should allow for normalisation of commercial activity

Since the start of the year, Jamaica’s stock market has been largely flat, with the Jamaica Stock Exchange Combined Index advancing by a mere 0.9 per cent between January 1, 2021 and April 9, 2021.

Although the growth is marginal, it is a significant improvement over the same period last year, when the index declined by 21.8 per cent, as investor sentiment turned negative on fears of the impact that a COVID-19 induced recession would have on corporate earnings. The situation was compounded by the fact that the economy contracted by 10.2 per cent in 2020 with most companies on the stock market reporting losses and year-over-year contractions in earnings.

Nevertheless, the outlook for the economy in 2021 is more upbeat, supported by vaccine and stimulus-led recovery in key source markets.

NCB Capital Market reports, which assessed the performance of the stock market thus far, argued that the local inoculation programme should allow for a normalisation of commercial activity locally.

Rebound in economic activity good for listed companies

The rebound in economic activity augurs well for the financial performance of companies listed on the stock market. Companies that depend on the tourism sector should fare better, as the industry should begin what is expected to be a gradual recovery.

Corporate earnings will likely remain under pressure for the current March earnings season, especially since the Government reintroduced strict measures such as the 8:00 pm curfew and the weekend lockdowns to contain the recent spike in new cases.

Despite this, the economic recovery is expected to gain momentum in the second half of the year and corporate earnings should improve as the worst of the COVID-19 effects dissipates.

Over 35 companies on the stock market are expected to report their financial performance and position for the March quarter and it is anticipated that earnings will continue to reflect the COVID-19 impact. For the materials and industrials sector, Carib Cement should benefit from the solid pace of growth in the construction sector.

This is expected to continue, given the Government’s intention to ramp up construction spend on public infrastructure for the 2021-22 fiscal year.

NCB Capital Markets believes that “the performance of the stock market will continue to improve as the year progresses, especially in the second half of 2021. The recovery in the economy and the normalisation of business activity with the continued roll-out of the Government’s COVID-19 programme augurs well for the corporate earnings and an improvement in investor sentiment”.

Furthermore, rapid distribution of the COVID-19 vaccine in key source markets and the expectations of rapid growth aided by the large government stimulus should help to kick-start the recovery in the tourism sector. The United States  economy is projected to grow by 6.4 per cent in 2021 based on figures released by the International Monetary Fund, which will be the fastest since the early 1980s.

Tourism recovery should filter down to dependent listed companies

This bodes well for Jamaica, as the US is the country’s largest source market. Moreover, the start of a recovery in the tourism industry, directly and indirectly, affects the financial performance of several companies on the stock market.

These include companies in the financial sector such as Sagicor and Sygnus, as well as the manufacturing and distribution sectors such as Caribbean Producers, WISYNCO and Jamaica Broilers.

The distribution of the COVID-19 vaccine locally will also play a key role in the improvement in investor sentiment. The faster the vaccine distribution, the higher the chances of the Government relaxing restrictive measures, which would support higher levels of domestic consumption and production, as well as higher earnings for companies listed on the stock market.