Keith Collister, Contributor

A Wall Street analyst told me this week he was puzzled at the fact that Jamaica's local financial markets appear to be so "relaxed" when a brief review of our newspapers reveals the political situation is clearly heating up markedly.

Normally, he would have expected the increased uncertainty associated with the election period to have already negatively affected the price of our international debt, our local stock prices and the currency.

Responding to these excellent comments, I believe the relative stability in our local financial market, despite our current electoral 'silly season,' is due to several factors.

Jamaica has been on 'election watch' for at least four months, so the associated uncertainty has already been largely discounted by our local financial markets. Every month, the pundits roll over the expected election date from August to September to October and so on.

No sign of change

There has been no sign of a change in the consensus on paying the debt to which our local financial markets would be extremely sensitive. Concerns about the direction of economic policy if the current Finance Minister stepped down after the election - assuming the current Government won - have been alleviated by widespread rumours that a prominent banker would take over this critical portfolio with the blessing of the current Minister of Finance and the Prime Minister, ensuring the ministry would continue to be run by a "safe pair of hands."

Up until very recently, there appeared to be almost no sign of the extremely ugly incidents of political violence of previous years.

Unfortunately, we have now started to see such signs as the political race has tightened. This tightening and the associated violence is sufficiently recent not to have yet had an impact on our local market.

Nevertheless, Jamaica's increased transparency and dependence on the capital markets, both locally and internationally, is likely to mean that the threshold before such "issues" start affecting the currency and financial markets will be much lower than in the past.

Oppenheimer's Greg Fisher, who is among the most experienced traders in Jamaica's international debt, has a slightly different perspective as he believes our bonds are driven by only one factor: supply and demand.

Interest rates cut

He argues that as interest rates are cut in Jamaica, "yield starvation" begins to set in, and he notes that liquidity in our international debt was "much more apparent after the Trinidadian money was sucked out of the Jamaican stock market." He argues that from an emerging markets 'vantage point,' Jamaican bonds are "hanging in there from a fiscal point of view," while U.S. money is making its way back to Jamaica as our bonds "continue to get global recognition."

Of course, what local investors really want to know is how all of this is going to affect our local stock market.

Timely seminar

In this regard, First Global Financial Services had a timely seminar last Tuesday on 'The top ten reasons to buy stocks now.' Kevin Richards made a good point that the low real returns currently available in fixed income are likely to force "cash-rich" pension funds back into the market.

He noted that some institutional buyers have already been active, drying up the supply of stock, which is likely to force institutions to raise their bids. He also correctly argued that the usual pattern is for the pension funds and other institutional investors to buy first, and for the retail investors to follow.

However, I don't believe Richards answered the question as to what will be the catalyst that turns a mild recovery from depressed prices into a stock market "bull" run.

Part of the answer lies in whether business confidence is improving, which makes it very important for investors to pay attention to the Jamaica Chamber of Commerce's Business Confidence Indices next Tuesday.

keith.collister@cwjamaica.com