The analysts of Taking Stock with Kalilah Reynolds say that the stock market may take a hit as investors may begin to realign their portfolios, as talks of a US recession persists and the Bank of Jamaica (BOJ) continues to raise interest rates.

The BOJ has increased its policy interest rate from 0.5 percent to 5 percent per annum over the past nine months. The BOJ’s policy interest rate sets the pace for interest rates at other financial institutions. 

The Central Bank has indicated that it has raised the rates in a bid to control inflation, which stood at 11.8 percent in April 2022, compared to April 2021.

Lock-in fixed rates now

Trader at JMMB, Shauna-kay Kelly Reid said that institutional investors, in particular, will be looking to lock in fixed rates to ensure that their portfolios are able to match inflation or stay above it.

“People will be looking to get out of the stock market and get into the fixed income market. Because, what you have now is that you can get a 30 day BOJ CD (Certificate of Deposit)  at 7 percent, 8 or 8.5 percent,” she said.

A certificate of deposit is an investment instrument that provides an interest rate premium in exchange for customers agreeing to leave a lump-sum deposit untouched for a predetermined period of time.

“When you compare that to the main market for instance, the main market has only grown one percent financial year-to date and two percent calendar year to date,” Kelly Reid said.

CEO of Profit Jumpstarter Keisha Bailey echoed similar sentiments, noting that there are varying investment options that work well in high interest rate environments.

“Yes, interest rates are increasing but they’re investments that you can use now that are profitable with rising interest rates, so investors would just need to pivot to that,” she said.

IPO stream

However, Kelly Reid noted that a steady stream of initial public offers (IPOs) would help to keep investors interested in the equity market.

Highlighting the success of Dolla Financial Services’ recent IPO which was 10x oversubscribed, she said that investors are still willing to spend money in the stock market.

“If we have a steady stream of IPOs coming out that will help to keep people in the stock market as opposed to leaving the stock market and cashing better returns in the money market,” she said.