M O N T H LY U P D A T E S A N D A N A L Y S I S F R O M T H E V M W E A L T H T E A M
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Jamaica Budget Analysis FY2021/22
The Robinhood and GameStop
Dilemma » Nicole Adamson Leading with Authenticity » Market Update & Economic Overview - February 2021
The Robinhood and GameStop Dilemma
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Nicole Adamson – Leading with Authenticity
Jamaica Budget Analysis FY2021/2022
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Market Update and Economic Overview
Market Manipulation can be defined as the act of influencing the behaviour of a market, or artificially inflating or deflating the price of a security for personal gains.
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Tamara Waul-Douglas MEET THE TEAM
Manager - Sales & Client Relations VM Wealth Management
Tamara Waul-Douglas joined the VM Wealth Team in October 2019 and brings with her more than 20 years’ experience in the financial services sector with previous roles spanning Loyalty and Client Retention, Payments management, Branch Management and operations. Tamara has a proven track record of exceptional sales leadership. This attribute will be fully evident as she guides her team of Wealth Advisors towards effectively serving our Clients.
Market MANIPULATION A Lesson for Investors from the Robinhood & GameStop Dilemma
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o you remember the story of Robin Hood? Ok, maybe you don’t remember the details; it’s been a while, but somewhere in your distant memory, you should at least remember the moral of this legend. The story of Robin Hood and his band of outlaws, known as the Merry Men, is a permanent part of popular folklore and is a constant reminder about some of the inequities we face throughout our lives. The essence of this tale is that Robin Hood was a noble thief who took taxes from the rich and redistributed this wealth to the poor people of England.
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However, free-trading mobile app and broker, Robinhood, may have done quite the opposite, as the company came under heat in late January for intentionally depriving retail investors of the ability to invest in GameStop and other stocks to protect institutional investments. This dilemma was initiated by WallStreetBets, a group of retail traders in a forum on Reddit, who formed a coalition to bid up the prices of stocks that were being heavily shorted by a few Hedge Funds. So, who was wrong?
Background of WallStreetBets-Driven Mania The collaboration of these WallStreetBets traders led to a stock price rally for the brick-and-mortar video gamer, GameStop (GME). GME was not the only stock that was heavily traded by WallStreetBets and other social media platform users. Other heavily traded stocks included American Airlines, AMC Entertainment, Blackberry, Bed Bath & Beyond, Koss Corp, Naked Brand, Nokia and Tootsie Roll Industries. GME, however, rallied on a trading frenzy, fueled by a message board on the Reddit platform. On Monday, January 25, 2021 the stock closed up approximately 18 per cent after multiple trading halts throughout the day. This movement began to raise eyebrows as GME was traded more than any other S&P 500 stock on that day. The next day, Tesla’s CEO Elon Musk chimed in on the situation and tweeted, “Gamestonk” to his near 50 million Twitter followers. By Wednesday, GameStop was the talk of the town and hedge funds such as Melvin Capital, Citadel and Point 72 had to close out their short positions after realizing huge losses. By this time, other stocks, like AMC and Bed Bath & Beyond became fueled by the Reddit frenzy and started to soar as well. GME finally pulled back for the first time in the six-day period by around 44 per cent but closed the month of
January with a massive 1,625 per cent price gain.
Robinhood’s reaction to WallStreetBets-Driven Mania As the trading frenzy worsened, Robinhood took the decision to adjust its margin requirements, making it more difficult for traders to use leverage to purchase the stocks. In an interview on CNBC, the CEO of Robinhood, Vlad Tenev, stated that the decision his company made was not to prevent investors from buying the stocks, but to limit the purchase of those so the company could meet its large deposit requirement with the clearinghouse. The broker raised over US$1 billion overnight from investors and had to tap into credit lines to ensure those requirements were met. However, it was the very act of restricting investors to purchase these stocks that led to Robinhood being accused of market manipulation, as it purposefully and knowingly removed GME from its investing platform amid an unprecedented stock rally thereby depriving retail investors the ability and right to invest in the open market. The company was also accused of protecting institutional investments at the expense of its retail clients when it halted other stocks such as Blackberry, Nokia and AMC Theaters.
What is Market Manipulation? Market Manipulation can be defined as the act of influencing the behaviour of a market, or artificially inflating or deflating the price of a security for personal gains. According to this definition, both WallStreetBets traders and Robinhood have conducted some degree of market manipulation. A WallStreetBets user known as ‘Roaring Kitty’, whose real name is Keith Gill, is being sued for
misrepresenting himself as an amateur investor and profited by artificially inflating the price of GME. He is accused of demonizing investment professionals by characterizing them as villains in order to motivate other traders. As for Robinhood, it now faces roughly 90 lawsuits from investors in the aftermath of this situation, generally claiming that Robinhood’s actions were unlawful and unfair. Robinhood has the responsibility to treat all investors with equity and fairness and provide them with access to the financial markets under consistent rules and transparency. While it is unfair for a broker to “cherry pick” securities and limit investor’s options, the movements on these stocks were driving Robinhood’s clearinghouse deposit requirements to levels that were unsustainable for them.
What can Investors learn from this? This brings to the forefront the importance of understanding the conditions under which you trade with your broker and evaluate their financial statements periodically. If a brokerage is offering a service for free, it is important to understand what funds their business and what rights exist for them as a broker and for you as a client. This course of events is a reminder that market manipulation is a reality and can occur. The Jamaica Stock Exchange (JSE) has implemented robust market surveillance and monitoring systems that are in alignment with international standards to deter market manipulation and insider trading and we implore all investors, both institutional and retail, to remain vigilant and refrain from participating in any suspicious activities that could potentially be categorized as market manipulation. Lastly, when looking to transact in a stock, always have a clear rationale guiding your entry and exit that aligns to your investment strategy.
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Jamaica Budget Analysis FY2021/2022
Revamping the strategy with hopes of turning things around
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rior to the IMF-supported programmes which expired in 2019 and the outbreak of the COVID-19 pandemic (2020), Jamaica suffered from years of low economic growth, high inflation rate, a sliding dollar and relatively high and unsustainable debt. Since then, the government has undertaken steps of transformational reforms that have improved the economy through a commitment to prudent fiscal policies. The Most Honourable Andrew Holness and his Administration released its Fiscal Year (FY) 2021/22 budget proposal last month, outlining Jamaica’s tax administration reform, revenue strategy and spending priorities over the near- to medium-term. By the administration’s estimates, the budget would balance out over the medium-term and keep debt on a downward path, despite the setbacks wrought by the pandemic. The GOJ’s optimism with the current budget notwithstanding, we anticipate recovery for the economy will take longer than the stipulated timeline and other measures are necessary for growth.
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Looking at the budget, we suggest a revisit of the programme of privatization of government facilities. We think that divestment of government-owned assets may be the best way to provide a well-needed injection of capital to bolster revenue intake. Several years ago, the GOJ identified state-owned assets for divestment to accelerate its privatisation programme. Since then,
the GOJ has sold the commercial assets of the Cocoa Industry Board, divested their 42.6% in KIW International to Jamaican Teas Limited and vended the Kingston Container Terminal (KCT) to Kingston Freeport Terminal Limited. Along with the above, the GOJ through the Development Bank of Jamaica (DBJ) has successfully privatised Caymanas Track Limited and the Petroleum Company of Jamaica and facilitated private investments in infrastructure assets via the Jamaica Stock Exchange (Wigton Windfarm Limited and Trans Jamaican Highway). Other entities considered include the GOJowned shares in the Jamaica Public Service Company (JPS), the Jamaica Mortgage Bank (JMB) and Jamaica Railway Corporation. Because the goal is to maintain spending during the pandemic and improve the conditions during the recovery, finance relief and recovery measures must be financed. Taxes may reduce disposable income and spending in the short-run and so raising taxes is not a viable option. Given the crucial importance of ending the coronavirus-driven recession as quickly as possible with overwhelming force, the government’s challenge is raising the required financing to fund the necessary spending. The issuance of public debt may also not be preferred or sustainable. In the past six years, Jamaica had to change its course and defy expectations to recover from high indebtedness where Jamaica’s debt-toGDP ratio skyrocketed as high as 147% before Jamaica brokered a final agreement with the IMF which ended in 2019. Since then, debt management has been the order of the day for the GOJ and issuing public debt will not be an avenue ventured especially with a 60% debt-toGDP target in the medium term. Thus, the option of privatization trumps issuing debt.
Debt management has been the order of the day for the GOJ and issuing public debt will not be an avenue ventured especially with a 60% debt-to-GDP target in the medium term.
During the next five years, we think privatization should be at the top of Jamaica’s economic agenda. This as developing countries have been quick to jump on the privatization bandwagon, sometimes as a matter of political and economic ideology, other times simply to raise revenue. The Government intends to work with international institutional partners and advisors to improve on the framework for divestment to maximise on value while minimizing on time without having to issue new debt or increase taxes. This could provide us with enough room to help us recover until we can issue more debt or amend taxes to achieve higher microeconomic efficiency and promote economic growth. While we are pleased that the budget aims to reduce debt and improve economic conditions, recovery relies too heavily on herd immunity from the COVID-19 pandemic, as global vaccination against the disease is undertaken. Even if much of the population becomes immune to the virus tomorrow, a timeline for economic normalcy would remain uncertain. Even with the risks outlined above, we are confident the measures outlined in the budget can help us recover, but not within the stipulated timeline. Privatization could, however, supplement the budgetary needs to help us recover in the time suggested by the Government.
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Nicole Adamson
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Leading with Authenticity Be authentically you. These are the words of wisdom from Nicole Adamson, Research Manager, Victoria Mutual Wealth Management Limited, in reminding other female leaders that they should remain true to themselves, even while boldly taking on the strictures of a leadership role.
“To me, leadership means helping my team recognize and achieve their full potential. It’s being able to rally persons towards a common goal, being able to get the best out of your team… to coach them to realize their own greatness, talents and aspirations,” she said.
“There is space for you in this world. The world doesn’t need copies of other people or other leaders. The world needs you and all that you have to offer,” she said.
Reflecting on the significance of Women’s History Month, observed in March and International Women’s Day, on March 8, Adamson said her most significant barriers on her leadership journey has been pushing against her own comfort limit to be able to lead confidently by speaking up despite being a shy person.
Adamson, who took on the role of Research Manager for VM Wealth Management in April 2011, has responsibility for managing the Equity Brokerage unit and providing relevant, accurate information, as well as market analysis and insights, to clients to guide their investment decision process. With over 15 years’ experience in the financial sector, Adamson is a CFA Charterholder and Financial Risk Manager (FRM) fellow with the Global Association of Risk Professionals. She holds a Master’s in Finance, Economics and Econometrics from the Cass Business School of City University in London and a Bachelor’s (First Class Honours) in Actuarial Science from the University of the West Indies, Mona. As a leader, she has distinguished herself as a conscientious worker, who values the aspirations and growth of her team, noting that amongst her most notable accomplishments is having three of her team members place in the Top Three of the Jamaica Stock Exchange (JSE) Research Competition.
“I have had to push the limits of my comfort zone to be able to be confident in my knowledge and expertise. As I have stretched those muscles, it has become easier for me to be bold in voicing my opinions, making objections and standing alone when necessary. I don’t think I’ll ever be that outspoken leader some expect, but as I learn more about leadership and the different styles of leadership, I’ve been happy to learn that it is okay to be true to myself and still be an effective leader.” Since joining the Victoria Mutual Group in 2007, Adamson has served as its chief analytical resource in areas spanning strategy, operations, investments and risk. Asked how she continues to be inspired for excellence, she said she draws from the lessons from her parents, especially her father, who instilled in her the value of always giving her best and to never be satisfied with a sub-par performance.
Wealth Knows
Dividend yield
Represents the ratio between the stock price paid and the dividend paid. As an example: A stock trading at $100 per share, with a dividend that amounts to $5 per year, you divide the $5 by $100 and turn it into a percentage. In this case, the dividend yield would be 5%. 8
Click to Check out our Stock Picks as at March 22, 2021
Market Update and Economic Overiew February 2021
Fixed Income A volatile final trading week of the month ended with the yield on the benchmark US 10-year Treasury at 1.45%, up 39 basis points (bps) month-over-month, as investors de-risked and flocked to safe-haven Treasuries. In addressing the House Panel on the 24th, Federal Reserve Chair Jerome Powell highlighted that interest rates will be left unchangedfor a long time. In addressing the Senate Banking Committee, Powell stated that the Fed is“committed to using its full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible.” Read the full report
Money Market J$ liquidity was tight in the month of February, sending rates up. The BOJ 28-day CD auctions closed at an average yield of 2.47%, up from last month’s yield that closed at 0.87%. February’s Treasury Bill auctions saw yields on all tenors spike between 79bps and 142 bps to just under 2% on the 182-day tenor. Rates were last this high in early 2019. Read the full report
Equities The stock market began a mild recovery in February with only a slight decline on the USD market, as earnings season saw the release of company financials, many of which showed better than anticipated financial results, in spite of the challenging 2020 operating environment. In particular, Ciboney Group Limited (CBNY), the top performing stock for the year thus far, having started the month at $0.24, gained 787.5% to a high of $2.13 before pulling back to close the month at $1.66. GraceKennedy Limited (GK) boasted its best financial performance in its 99-year history. Read the full report
Foreign Exchange In February, pressure continued to mount against the Jamaican dollar for the first three weeks, before a pull-back in the final trading week of the month as end-users were resistant to the high-priced supply. The local dollar closed the month at $151.20 in the Broker marker, posting a marginal 40 cents month-over-month loss. The BOJ’s Weighted Average Selling Rate (WASR) closed February at $151.9405, a $0.40 or 0.26% depreciation versus yesterday’s close of $151.5422. Read the full report
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