JSE DECLINES as investors ready for IPOs

JSE DECLINES as investors ready for IPOs

Jamaica's stock market in decline; 4.9% decline year over year

Observer business writer

Friday, February 28, 2020

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The local stock market has been in decline, particularly since the start of the year, as investors are selling out their shares to position themselves to buy into the recent initial public offering (IPOs).

Since the start of the year the stock market has lost 3.05 per cent, while year-over-year the decline has been 4.9 per cent. The quarter-to-date loss is 4.9 per cent and the week-to-date loss is one per cent. However, market experts are saying there is nothing to fear from this slide.

They say the recent fall in the stock market is explained by investors positioning themselves to take advantages of the new IPOs and additional public offering (APOs) that are on the market and those that will be coming over the next few months.

Managing director of the Jamaica Stock Exchange (JSE), Marlene Street Forrest told the Jamaica Observer that the decline is expected, given the market dynamics that are at play.

These dynamics, she explained, involve investors positioning themselves for these large IPO's, making reference to the current TransJamaica Highway (TJH) IPO, which is the largest in Jamaica's history.

The IPO, which opened on February 17 for eight billion shares at $1.41/US$0.10 per share, has already been oversubscribed and upsized by additional two billion shares last week, given the wide subscriptions.

Immediately following the TJH IPO, at least six companies have indicated an interest in having an IPO or APO to raise capital on the equities market in the coming weeks.

“What we have been seeing is the market getting ready for these large IPO's, investors anticipating the market and positioning themselves to buy,” Street Forrest explained.

When questioned about a point made by one analyst that some investors might be worse off in selling their blue chip stocks for these new IPOs, the JSE managing director's response was that “there is no evidence to support this point of view”.

According to Street Forrest, “it is too early to make such an assessment, and I am unable to speak about a repercussion of selling at this time to buy into a current or upcoming IPO”.

Speaking at last Wednesday's Mayberry Investors' Briefing, Mayberry's CEO Gary Peart admitted that the decline in the market has more to do with shareholders selling their existing stocks to buy into these new IPOs on the market.

“One of the things we have seen with a lot of investors nowadays is, whenever there is an announced IPO, they sell existing shares to position for the new IPO and, as you would have realised over the last few months, there have been several IPOs,” Peart observed.

He made the point that there has been some pullback in a few blue chip stocks, such as the large banks, owing to these investors selling their shares to bid for equity in the IPOs on offer.

This, the Mayberry CEO pointed out, is “happening right across the market and is not confined to any particular stocks”. The stockbroker and investment professional cautioned investors to examine their investment decisions carefully.

Peart observed, “some investors have been selling out their stocks in liquid blue chip companies giving good returns, to opt to buy into these new IPOs which would not offer better returns — where the company invested in is not as stable as the ones they would have sold out their shares in”.

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