The devaluation of the Jamaican Dollar pushes Stock Market Indices to record highs

The devaluation of the Jamaican Dollar pushes Stock Market Indices to record highs

Since 2015 JSE Main Index Went Up 94%. While the economy contracted by -.1% growth and poverty increased in real terms at 40-45%.

Current monetary policies administration by the Bank of Jamaican (BOJ) point to a very interesting investment framework in which private capital for economic development of the broader economy is held exclusively in an almost perfect asymmetry defined within the overlapping boundaries of investment returns between the Jamaica Stock Exchange (JSE) and the Foreign Currency Exchange (FX) market Spreads.

This pattern of bidirectional relationship between stocks and exchange rates is only evident in one other country that is Nigeria. It is an amorphous economic framework in which investors will generally rush to optimize their equity returns or portfolio values by purchasing stocks when there is any appreciation or stability in the Jamaican dollar. This pushes the stock market index upwards, while on the other hand, a depreciating dollar will see the opposite occurring as investors seek to optimize their portfolio returns from the increasing exchange rate spread.

This asymmetry within a closely confined range of investment returns is supported by frequent intervention in the currency exchange market to manage the appreciating effects on the local currency from the ever-increasing Direct Remittance Investments (DRI) in a so-called effort to make liquidity adjustments outside of the normal market operation. “The exchange rate effect of remittances, therefore, serves as a potential channel for offsetting the upward adjustment in the debt stock from a depreciation of the domestic currency”

This exchange of portfolio values between the Stock and Exchange Rate Markets is tightly held within a band or asymmetry of investment returns ranging from 11%-19% when annualized and could result in total earnings of up to 30% on investment portfolio having a mix of foreign currency and equity.

It would appear then that market intervention to force liquidity at a new level of depreciation in the domestic currency outside normal market resets only serves to counteract the appreciating effects of DRI and increase shareholder’s value at the expense of the working class and poor who will have to bear the burden of high taxation to service the debt and budget deficits for generations to come.

By Silbert Barrett

Silbert Barrett is a graduate of Ryerson University in Toronto and graduate student in Engineering and Public Policy at McMaster University.  As an opinion columnist and blogger, he explores issues and creative ideas around public policy, sustainable infrastructure and International Economic Development to empower and educate those who are concerned with good governance in public accountability and transparency. He is a strong advocate for the rights of the Jamaican Diaspora to vote as an independent electorate to impose governance conditionality for a better Jamaica.




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