• CPJ reported a net profit of US$5.42Mn (EPS: US$0.48) for its 6 months ending December 31, 2021, up from a net loss of US$2.79Mn in the prior period.  This performance was supported by a 138.1% increase in revenues, ending the period at US$58.08Mn. 
• There was a surge in business activity during the period after the easing of COVID-19 restrictions resulted in greater tourist numbers, which boosted sales along with traditional Christmas activity. The company experienced a rebound in both its hospitality and retail channels, which had felt the full brunt of the pandemic. Overall most of its financial metrics saw a significant increase owing to higher business activity. 
• Going forward the company should continue to see a rebound in earnings on the back of recovery in the hospitality industry, although new variants of COVID-19 pose a downside risk, which could temper the pace of the recovery. 
• CPJ’s stock price has increased by 55.81% since the start of the calendar year. The stock closed Thursday’s trading session at $20.31 and currently trades at a P/E of 39.8x earnings which is above the Main Market Distribution & Manufacturing average of 25.9x. The significantly higher P/E for CPJ relative to its peers suggests that the market is already pricing in the recovery in its operations.

(Source: Company Financials)

• Renewed tourism activity in Jamaica will drive real GDP growth of 4.6% in 2021 and 4.1% in 2022, up from a 9.9% contraction in 2020 according to Fitch Solutions. This is an upward revision from its previous 2021 forecast of 4.4%. It follows the Q2 2021 data which showed quarterly growth of 14.2% y-o-y (seasonally adjusted 2.4% q-o-q).
• The modest easing of travel restrictions and more limited overnight curfew in Q2 2021 supported tourism arrivals and commercial activity. Tourism historically accounts for roughly one-third of economic activity. Foreign arrivals increased 5,065.1% y-o-y in Q2 2021, a figure that is inflated by the near-complete shutdown of the tourism industry in Q2 2020 amid the onset of the COVID-19 pandemic. Q2 2021 arrivals were 61.2% below Q2 2019, suggesting that the Jamaican economy remains well below its pre-pandemic level. Fitch forecasts Jamaican real GDP will not return to pre-pandemic levels until 2023.
• Real export is expected to grow 8.2% in 2021 and 3.8% in 2022 as high levels of COVID-19 vaccinations in key source markets will support tourism inflows to Jamaica and services exports. The US, UK and Canada, key tourism source markets, ramped up their vaccination campaigns in H1 2021, with at least 65.0% of their respective populations receiving at least one dose of a coronavirus vaccine as of October 2021. This is expected to underpin greater demand for overseas travel.
• Moreover, airline and cruise ship companies have announced plans to increase travel options to Jamaica. American Airlines announced that it would resume direct flights to Jamaica in December 2021, with 17 nonstop flights per day. Meanwhile, Carnival announced that 110 cruises will stop in Jamaica from October 2021 to April 2022, while Royal Caribbean announced that it would resume cruises to the country beginning in November 2021.

(Source: Fitch Solutions)

• United States (US)-based Frontier Airlines has announced plans to increase the number of weekly flights to Jamaica, beginning November 1. International Sales Manager, Alfredo Gonsalez, has said that three new gateways will be added to the existing slate, to bring the number of destinations from which scheduled service into Montego Bay is provided, to four. 
• Frontier will commence flights from Atlanta, Georgia on November 1, Orlando, Florida on November 2, and Newark, New Jersey on December 17. These, he indicated, will be in addition to flights from Miami, Florida to Montego Bay, which commenced in May. 
• The decision was based on the need identified after two very difficult years in the travel industry, consequent on the coronavirus (COVID-19) pandemic, to connect [and] bring people from the US back to Jamaica [and] people from Jamaica to the US. He said the airlines’ leadership decided early in the pandemic to identify key potential destinations that would need to be connected, once countries globally lifted or relaxed travel restrictions, adding that Jamaica was definitely one of them. 
• This augurs well for recovery in the tourism industry and indicates that there is demand for travel to Jamaica. It comes against the background of increased consumer confidence around travelling for vacation purposes. According to the US Conference survey of consumer confidence in October, 50% of Americans indicated that they plan to go on vacation within the next six months, the largest since February 2020. As the US market accounts for the largest share of visitors to Jamaica, this bodes well for the demand for our tourism product. 
• Notwithstanding, the CDC’s risk assessment for COVID-19 for Jamaica could pose as a deterrent to some travelers as Jamaica is categorised at level 4. This means that persons should avoid travelling to the destination or be fully vaccinated before travel. The hope is that a continued downtrend in COVID-19 cases will result in a reduction in the island’s risk category ahead of the peak winter season.

(Source: JIS News & NCBCM Research)

• Jamaica Producers Group ('JP') announced that it has established Grupo Frontera Limited ('GFL' or 'Grupo Frontera'), a 50/50 holding company with Norbrook Equity Partners (‘Norbrook’). As part of the transaction, Grupo Frontera recently acquired the assets and operations of Grupo Alaska ('Alaska'), a leading ice and water company in the Dominican Republic. Grupo Frontera was established by JP and Norbrook to acquire and grow well-positioned companies in the Spanish speaking Caribbean and Central America, the first of which is Grupo Alaska. 
• JP is a Jamaican-owned multinational with its primary businesses in food and drink and logistics and infrastructure. JP owns and operates Hoogesteger Fresh Specialist BV, the market leading fresh juice manufacturer supplying Holland, Scandanavia and other markets in Northern Europe. It is also the largest shareholder of CoBeverage Labs SL, a fresh juice manufacturer supplying Southern Europe. JP’s specialty food interests include its Tortuga subsidiary, through which JP operates a Jamaica-based bakery that supplies Tortuga Rum and Spirit cakes to over 15 countries. 
• JP Snacks Caribbean, a subsidiary of JP is a leading regional producer of tropical snacks. JP Farms, Jamaica’s leading banana farm, is the largest private sector employer in St. Mary, Jamaica. JP Group’s logistics interests include Kingston Wharves Limited, a regional multipurpose port, Geest Line Limited, a UK based shipping line connecting European, Caribbean and Latin America markets, and JP Shipping Services a freight forwarding and logistics enterprise based in the UK. 
• This investment in the Dominican Republic will allow JP to tap into this lucrative market while leveraging its expertise in the food and drink business. The Dominican Republic, which was one of the fastest growing countries prior to the pandemic, is expected to grow by 8.2%  in 2021 and 4.8% in 2022, as a swift national vaccination campaign and resilient private consumption drive domestic activity.

 (Source: JSE News, Fitch Solutions & NCBCM Research Team)

• For the 6-month period ending June 2021, Mayberry Investments reported a net profit of $288.93Mn (EPS: $0.24), which is a significant improvement over the net loss of $962.01Mn incurred in the prior year. This came on the back of a $1.74Bn rise in net operating income. 
• Although fees and commission, dividend income and net foreign exchange gains fell by 20.9%, 20.9% and 16.6%, respectively, the primary contributor of this increase in net operating income was an unrealized gain on investment of $508.72Mn, relative to a loss $1.19Bn in 2020. The gains reflect in the year on year rise in the prices of stocks held by the subsidiary company, Mayberry Jamaican Equities. Net interest income (68.3%) and net trading gains ($85.99Mn) also rose to support the bottom-line. 
• These increases in income were enough to offset the $61.27Mn (8.5%) expansion in operating expenses which was driven by higher expenditure, namely computer licensing fees, management fees, sales and marketing, donations, insurance and IT consulting fees. 
• Mayberry Investments’ operating performance should continue to improve in the coming quarters, as increases in private consumption, investor confidence and corporate earnings bolstered by more relaxed COVID-19 restriction measures, support improvements in equity prices and therefore unrealized gains from its equity investments. Nevertheless, the current rise in cases, which could lead to the reemergence of the restrictions poses a risk to the recovery, especially with the emergence of new strains of the virus. 
• Mayberry Investment’s stock price has depreciated by 5.8% since the start of the year to close at $5.65 on Thursday. It currently trades at a price to book of 0.76x, which is below the main market financial sector average of 1.92x.

(Source: Company Financials & NCBCM Research)

• The Guyanese economy will be a regional and global outperformer in the coming quarters as an energy boom and a recovery in the non-oil sector are expected to drive real GDP growth. 
• Fitch Solutions, has long highlighted its constructive outlook for Guyana as a nascent energy boom offers tailwinds to short- and long-term growth. In 2020, the economy grew 43.5% despite an estimated 7.3% decline in non-oil activity and the 3.4% global contraction due to the COVID-19 pandemic. 
• That being said, easing domestic risks from COVID-19 and a robust global growth recovery, which is forecasted at 6.7% in 2021 and 4.2% in 2022, will support Guyanese domestic demand and underpin stronger exports in the coming quarters. 
• Sustained export growth and higher public spending will underpin a longer-term expansion; particularly as foreign energy companies accelerate crude oil production in the offshore Stabroek block. 
• Fitch Solutions forecasts Guyanese real GDP growth of 21.1% in 2021 and 19.2% in 2022, from a 45.3% expansion in 2020.

(Source: Fitch Solutions)

• Efforts made in prior years to strengthen business fundamentals, including consolidating its dairy factories, increasing exports, and expanding its distribution footprint through the acquisition of the Facey Consumer business, supported Seprod’s robust earnings performance in 2020.
• Consequently, the company was able to increase revenues by 16.4% (or $5.37Bn) to $38.07Bn in FY2020, which more than compensated for the 6.1% (or $1.45Bn) and 24.3% (or $1.78Bn) rise in direct and indirect expenses, respectively. This influenced an 85.7% or $1.46Bn year over year growth in net profit from continuing operations to $3.17Bn (EPS: $4.32).
• Seprod realized a reduction in the demand for goods and services from the tourism sector (which accounts for a maximum of ~10% of direct revenues). However, this fall-off was more than offset by the sale of pharmaceutical products and basic food items such as flour, cornmeal, cooking oil, and margarines during the pandemic.
• After rising 27.3% in 2020, Seprod’s stock price has further increased by 4.2% since the start of 2021 and closed Tuesday’s trading session at $67.61 per share. At this price, the stock trades at a P/E of 15.7x, which is below the Main Market Distribution & Manufacturing sector average of 27.5x.

(Source: Seprod Financials)

• Chile’s consumer prices rose more than forecast on a jump in the cost of clothing and household goods, as the second round of early pension withdrawals juiced demand in one of Latin America’s richest nations.
• Consumer prices rose 0.3% in December from the month prior, more than the 0.2% median estimate from analysts in a Bloomberg survey. Annual inflation sped up to 3%, right on the official target, the national statistics agency reported on Friday.
• Chile’s consumer prices are steadying as the economy recovers from a sharp downturn caused by the coronavirus. The central bank has said there’s less of a risk for low inflation while falling unemployment and a new law allowing for more pension-savings withdrawals boost consumption. Still, recent virus restrictions in capital Santiago may crimp demand going forward.  

(Source: Bloomberg)

Alternative Investments have been creating quite a buzz in the financial market. This quickly emerging investment option has been making the rounds in recent times as investors contend with the effects of a global pandemic, geopolitical risks, and the resulting impact on the performance of traditional assets such as stocks and bonds. This rollercoaster experience in traditional asset prices caused by the aforementioned factors, is expected to become the new normal, but has negative implications for long term financial goals. As a result, the search for investments in assets in non-traditional spaces, which have exhibited relatively low correlation to stocks and bonds, have intensified. When additional benefits such as the potential returns, steady income stream, and inflation hedge are considered, alternative investments have become a staple for investors in this day and age. Historically reserved for institutional and high-net-worth investors, alternatives are now considered a core portfolio holding. 

Alternative investments represent a different or “alternative” option for investors to diversify their portfolios away from their longstanding reliance on traditional stocks, bonds, and cash. They may include hard assets such as commodities, currencies, infrastructure projects, vacant land and developed real estate/real estate investment trusts (REITs). They may also include a group of assets professionally managed in a non-traditional format. These investments can deliver returns from different drivers and in different patterns than traditional stocks and bonds. As a result, there are significant diversification benefits when included in a standard portfolio. Stronger diversification offers the benefits of potentially generating attractive returns, reducing volatility in a portfolio for a smoother and less-stressful investment experience, while preserving capital over a longer-term horizon. For investors with the appropriate risk tolerance, alternatives offer the potential to earn higher returns and act as an inflation hedge. The twenty-year average annualized returns of REITs and Gold were 9.9% and 7.7% versus 5.6% and 4.5% on stocks and bonds, respectively. Moreover, given that infrastructure and other physical assets such as real estate, once built, exist for generations, and the contracts underpinning the provision of infrastructure services tend to be long-term with predictable revenue streams, investors stand to benefit from this steady income stream. That said, these asset classes usually require high minimum investment and advanced technical competencies to assess their attractiveness. As such, they are primarily held by institutional investors such as pension funds and ultra-high net worth investors.

Global alternative assets under management reached nearly $US10.1 trillion in 2016 and are expected to grow to US$21.1 trillion in 2025, underpinning a fundamental shift towards alternatives by many sovereign and public pension funds. In April 2015 for instance, the world’s largest pension fund, the US$1.1 trillion Government Pension Investment Fund (GPIF) of Japan, announced a new strategic asset mix in a bid to achieve higher returns and address the needs of an ageing population. Significantly, GPIF’s new mandate allows for a 5% allocation to alternatives, representing a significant opportunity for alternative firms[1]. In North America, the Canadian Pension Plan for example, holds over 50% of its net investable assets in alternatives[2]. Although the trend has started with larger institutional investors in developed markets, alternatives will increasingly occupy a prominent allocation in the world’s economies, both established and emerging.

Having been traditionally a government fixed income instrument reliant investor base, declining interest rates brought a shift to the Jamaican investment landscape in the last decade as investors turned to the stock market in search of higher yielding assets. Up until two years ago, the Jamaica Stock Exchange (JSE) was riding on a high having copped “best performing stock market” by Bloomberg in two of the last five years. Fast forward to 2020, the year of the great pandemic, earthquakes, geopolitical tensions and elections (just to name a few), the tables turned once again and suddenly the JSE is being featured among the worst performers globally. While the general expectation is for a recovery in the stock market, we can agree that bouts and dips will become the new norm and as such, local investors must now consider other assets that will help them stay afloat even in uncertain times.

Markets are now more volatile than ever and investors need better ways to grow their wealth while effectively managing risk. Alternative investments can be key components in portfolios for all investor types, providing diversification benefits and reduced volatility helping investors achieve their goals. While the high minimum investment and difficulty in assessing these investments may prove challenging particularly for local retail investors, collective investment schemes such as mutual funds should be considered for these exposures. In addition to the lower minimum requirement relative to an outright purchase of the asset, mutual funds provide access to a wider range of assets that fit within a particular theme and management with the requisite skill set to assess the attractiveness of the individual investments. Given the benefits outlined, it is safe to say that mutual funds will be the vehicle that drives alternative investment assets in the retail investment mainstream in the not too distant future.

Simone Hudson

AVP Alternative Investments & Fund Management

NCB Capital Markets Limited

[1] PricewaterhouseCoopers

[2] MacKenzie Investments