Shane Ingram and Vernon James, Contributors
LOCAL EQUITY prices receded in 2005 against the backdrop of challenging economic conditions largely arising out of a twin shock from spiralling oil prices and two hurricanes.
In particular, inflation reached 12.8 per cent for the calendar year-to-November following strong impulses from high food prices arising from the passage of Hurricanes Dennis and Emily, an increased GCT rate and rising international oil prices.
Simultaneously, GDP growth was measured at 0.3 per cent for the period April to June, down 2.2 percentage points from the matching period of the prior year.
Fiscal numbers for April to October 2005 showed that the GOJ had missed its deficit target by some $2.7 billion, driven by a significant shortfall in GCT revenues relative to projections. However, healthy savings on the expenditure side from interest payments and reduced capital expenditure helped to temper the impact of the revenue slippage.
The dollar also endured periods of instability since the start of July warranting sustained supply side interventions by the BOJ. Consequent to the pressures in the foreign exchange market and the unfavourable trends in local inflation, the BOJ was also forced to moderate its interest rate reduction strategy.
However, as we exit what has been an inauspicious year for equities, investor confidence appears to be growing and this bodes well for a recovery in prices in 2006.
The upbeat prognosis for the New Year originates, in part, from the slowdown in local inflation in both October and November as well as signs that international oil prices have now peaked.
Importantly, Jamaica is set to enjoy one of the best winter tourist season's, seen in years. The resulting foreign currency inflows from tourism are expected to bolster the BoJ's demonstrated commitment to maintaining the stability of the Jamaican dollar. The PetroCaribe initiative will also reduce the demand for foreign exchange, which should complement Jamaica's easy access to international funding. As order returns to the currency market, there should therefore be a reduction of any upward pressure on interest rates. Investors will also have more to spend in 2005 given the projected return to single-digit inflation and the increase in the income tax threshold scheduled for January.
Listed companies should benefit from the prospects of an improved economic climate. As corporate earnings strengthen, investors should be more encouraged to participate in equities. New IPOs including the much-anticipated First Global are also expected to revive the market; as should current market valuations.
Therefore, an air of optimism welcomes the New Year as the above factors converge.
The Following stories are six stocks to watch but note our two wild card choices, Carreras Group and Jamaica Producers.
