Fri | Apr 19, 2019

Hylton Dennis | JSE still missing the big picture

Published:Wednesday | February 6, 2019 | 7:01 AM
Marlene Street Forrest, managing director of the Jamaica Stock Exchange.
Marlene Street Forrest, managing director of the Jamaica Stock Exchange.

The Jamaica Stock Exchange (JSE) just concluded the staging of its 14th Regional Investment and Capital Markets Conference. It turns 50 this February, having been born in 1969 at Jamaica’s industrial revolution and last major economic boom. This was the same year the Jamaican dollar became legal tender, replacing the British Pound Sterling.

Entrepreneurial confidence was robust, many new companies were being formed, including those in the manufacturing industries and financial institutions. Big things were happening at the time of its birth and bigger things are happening at this time as it reaches the half-century of its existence. Yet, the JSE isn’t seeing the big picture of its designation to take the mantle from the International Monetary Fund (IMF) to lead Jamaica into its next industrial revolution and realisation of its Vision 2030 goal of becoming the ideal country to live in, work, raise children and retire. It is yet to be convinced of its capacity to do this.

Jamaica has turned the stabilisation corner in all respects, except export-led industrial growth, public health, and safety. It swallowed the full dose of the bitter fiscal medicine, and healthy reading results are now showing on its fiscal chart. The national infrastructure is improving, particularly roads and communities. There is a full embrace of the use of renewable energy, with national power plants being built or retrofitted to use cheaper, lighter, less hazardous fuels and other power-generating resources.

There has been a huge but not phenomenal or record increase yet of companies listed on the main and junior markets of the JSE. The Government has stopped borrowing national savings, and since commercial banks, without the sanction of their chief regulator, the Bank of Jamaica, are violating the core purpose for which they are licensed, which is to be the chief custodian of national savings and chief source of loans or credit to the business sector to grow the economy, turning instead to cannibalism of savings by imposing mercenary service fees on their customers, the JSE now enjoys the greater national fiduciary trust and confidence.

CAPITALISE INDUSTRY WITH DEBT-FREE EQUITY

It was always the JSE’s role to capitalise industry with debt-free equity, while banks do mainly collateral risk lending for a variable interest premium. So banks would naturally be prejudicial, putting virgin entrepreneurs with very good business prospects but a collateral deficit at a great disadvantage and compromising the growth of the national economy. Banks provide unreliable convenience, while the stock exchange, reinforcement of confidence.

The JSE is a privately owned, publicly traded corporation, exclusively providing a national service. It has a monopoly of the public capital market but it is controlled by a minority of major shareholders, none of whom is the Government and most of whom are subsidiaries of the leaders of Jamaica’s banking oligarchy. So its governance, aside from statutory regulations, is directed by its majority shareholders, and its operations cannot be in conflict with their priorities.

As a result of this, the management of the JSE might appear to cautiously and deliberately fudge through innovation or tentatively pursue them. It is this observation which led me, in a previous Gleaner article, to tell the JSE that it needs mass appeal rather than apex ventures.

Bloomberg, the international media authority on finance, recently listed the JSE, as it did before, as the best-performing stock exchange in the world, adding that: “It is a beacon for adventurous global investors.”

Citing superlative comparative growth numbers for the JSE, Bloomberg commented, however, that: “It doesn’t take much investment to make a tiny market boom, and the total value of the 37 stocks on the main Jamaica index is less than $11 billion.”

This is because, as yet, the JSE is not attracting global investors, even from Jamaica’s huge wealthy diaspora. It’s ultra-conservative rather than adventurous marketing posture is limiting its conversion of the superlative per capita performance metrics that swells it with pride into equally magnificent earnings and economic expansion, which Bloomberg suggests is a big shortfall.

Bloomberg places JSE at the centre of Jamaica’s economic transformation by stating that its performance is: “A story about Kingston’s attempts to reinvent itself as a financial hub, even as it works to reduce the heavy debt load that brought the country to the brink of crisis a decade ago.”

GROWING A NATIONAL CAPITAL INVESTMENT CULTURE

I have pointed the JSE to growing a national capital investment culture, which is an evolution of the national saving programme that targeted primary-school children in the ‘70s under a government-appointed National School Saving Committee.

I had one of those accounts in which we thriftily deposited a portion of our weekly lunch and pocket money allowance. Since then, I observed that the JSE is partnering with the Financial Services Commission (FSC) to stage town hall investment fora across Jamaica and made similar overtures to the diaspora. However, more innovative strategies than this are needed to grow a national investment culture that has generational succession.

The JSE announced plans to establish what it calls a Social Stock Exchange, but that is an ecosystem, not a trading platform. The national service provided by the JSE creates economic and social security. All the indices of the JSE need to be rebranded and reclassified by industry, listing volume, currency, and dividend structure.

The main and junior market classifications should be discontinued and no separate market should be added for social enterprises. Instead, a futures exchange should be launched.

The ownership structure of the JSE should be further democratised through proportional divestment of some shares by current majority owners of the JSE, to add a rotating seat on the board for a representative of one of the major public universities, the National Insurance Fund, a representative of the new Government Workers Contributory Pension Fund, a representative of the credit unions and a representative of the diaspora.

All this transformation of the JSE, with its documented history, institutional education and public education and a global business model, will ensure in future that Bloomberg can unreservedly recommend the JSE as the standard-bearer for global stock exchange management. Making the cut as No. 1 in the world per capita is a good foundation.

Hylton W. Dennis is a publisher and past vice-president of the Press Association of Jamaica. Email feedback to columns@gleanerjm.com .