BSE market lacking vibrancy, says Professor

For the first quarter of this year the six stock markets in the Caribbean have struggled to recover, even as international stock markets continued their rebound streak in the face of the COVID-19 pandemic.

At the same time, Professor Justin Robinson, Executive Director of the Sagicor Cave Hill School of Business and Management, has raised several questions regarding the Barbados Stock Exchange (BSE) and its lack of vibrancy especially on the junior market.

Robinson was presenting the first quarterly CARICOM Investments Report during a recent virtual session, as the Cave Hill School of Business seeks to zero in more on private sector investment and performance in the region.

The report, which examines the January 4,2021 to March 31, 2021 period, tracked some 211 equity issues, nine of which are in Barbados; and 21 corporate bonds, one of which is in Barbados.

In addition to the BSE, there is the Jamaica Stock Exchange (JSE), the Trinidad and Tobago Stock Exchange (TTSE), the Guyana Stock Exchange (GSE), the Bahamas International Securities Exchange (BISX) and the Eastern Caribbean Securities Exchange (ECSE).

For the first three months of this year, just over 1.23 billion shares traded on the six exchanges across CARICOM, with 74 stocks (or 34.5 per cent) posting gains, while 104 (or 49.7) declined and 31 (or 15.6 per cent) traded firm.

While Jamaica, which carries the bulk of traded stocks in the region, was the most dominant with at least five of the most actively traded stocks during the quarter, the five biggest movements of shares in terms of share price, was split between the JSE (4) and BSE (1), while all top five biggest declines for the quarter were from the JSE.

“At the end of quarter one, the market value of all of the investments on the stock exchanges was US$32.1 billion, not an insignificant amount,” declared Robinson.

“Of course that is quite small compared globally. At the end of March this year the S&P 500 market shares was US$33.49 trillion and the FTSE 100 in the UK was US$2.5 trillion, but still US$32 billion is not an insignificant sum of money invested,” he stressed.

However, he said: “The regional markets continue to struggle whereas we are seeing a bit of a rebound continue globally”.

For the review period the stock market index in the region was down 0.08 per cent while the S&P was up 5.8 per cent and the FSTE up 3.98 per cent.

Robinson said the 104 stocks that declined and the 31 that were unchanged, suggested it was a weak quarter for the regional stock markets “which shows that COVID-19 is impacting one, the performance for the companies, which underlies the trading; and also impacting the wealth of investors, which also impacts on trading”.

“It shows that the economy and by extension the companies and investors across the region, continue to be plagued by the negative effects of the COVID-19 pandemic, and if you compared that to what is happening globally, you see the markets in positive territory – green for the US S&P 500 and for the UK also,” said Robinson.

Despite this however, he quickly pointed out that “if you look at the stability index, our markets are rather less volatile than globally. So you are not generating a high return but your investments are more stable”.

While admitting that it was difficult to predict the future performance of the stock market, he acknowledged that most markets in the region were externally driven and a lot would depend on how soon commerce would improve.

“In quarter two I would expect to see a strengthening of the market as the lockdowns continue to ease across the region and commercial activity picks up.

But I think a lot will depend on the control of the virus and the speed with which we are able to vaccinate people,” he added.

Citing reasons for a more vibrant JSE, when compared to the BSE and other regional markets, Robinson pointed to “dramatic and sophisticated” development of the financial services sector in Jamaica, which by extension included the enhancement of the stock market.

He highlighted significant tax benefits for small and medium sized businesses listing on the junior stock market in Jamaica as well as a very advanced financial services sector regulatory framework.

In addition, he said the market size and macroeconomic stability have contributed to its favourable performance over the years.

“Jamaica has had a pretty successful IMF programme over the last decade which has given a lot of stability in terms of the macroeconomic stability in Jamaica, and they have done a lot of reforms in terms of governance and the environment, which has create a stable environment for investment,” he explained.

On the other hand, he said Barbados had gone through “quite a bit of macroeconomic instability” in recent years, and many companies have decided not to go public for varying reasons.

Pointing out that the Barbados junior market had mirrored that of Jamaica in its earlier days, Robinson reasoned that it did not result in a lot of activity over the years and as the country dealt with its worsening fiscal situation incentives were eliminated.

However, pointing to the current low corporate tax rate he said this should be favourable.

At the same time, he questioned whether local investors were interested in equity, and if there was interest among company operators here to use the stock market as part of their growth strategy.

Stopping short of suggesting that authorities do away with the BSE, and while encouraging individuals to “think regionally” when it came to investing in stocks, he also questioned whether the region could do without some of the less vibrant stock markets.

“In a way you could argue that we already have a regional stock exchange, it is called the Jamaica Stock Exchange. When you look at it, most of the regional companies, the major regional players are listed in Jamaica. The other markets are quite small,” he said.

There are only nine unique companies listed on the BSE, meaning they are not listed on other stock exchanges in the region. In the case of the ECSE and GSE there are 13 each. Meanwhile, there are 24 unique companies listed on the TTSE, 27 on the BISX and 125 on the JSE.

It is expected that when the second edition the CARICOM Investment Report is presented, issues relating to the movement of money across the region for investment will be explored. (MM)