Institutions to redeploy Scotia proceeds slowly, favouring fundamentals

Fund managers are likely to wait, rather than rush to reinvest funds following Scotia Group Jamaica’s pending exit from the Jamaica Stock Exchange (JSE).

Most of the funds will flow from “institutional investors and pension funds” that will negotiate large block transactions rather than chase speculative opportunities, said Dan Theoc, chief investment officer at Mayberry Investments, in a Financial Gleaner interview.

Scotiabank in Canada plans to spend C$500 million to acquire the minority stake in its Jamaica operations, a transaction that will result in the delisting of Scotia Group Jamaica from the Jamaica Stock Exchange. The stock has long been viewed as a stable holding, offering a dividend yield of 4 to 5 per cent, which investors have come to see as a solid return – with price appreciation lifting the total yield even higher. The deal is subject to shareholder and regulatory approval.

Theoc estimates that the deployment process could take anywhere from six to 12 months, because of the limited number of large, liquid investment opportunities available in Jamaica. He nevertheless expects most of the capital to remain in equities over time, estimating that 70 to 80 per cent of the proceeds will eventually find their way back into stocks.

Institutional investors will “focus on the fundamentals”, he said, cautioning that smaller investors may seek out other investment strategies.

“I’m really hoping that this will force people to start to pay more attention to the fundamentals and stay away from the hype-type stuff,” Theoc added.

Likely beneficiaries

Theoc argued that large investors would remain guided by long-term investment policies and asset-allocation targets when deciding where to place the proceeds. Still, he believes several established companies could attract significant flows.

He identified NCB Financial Group as a potential beneficiary, arguing that the stock trades at valuations on par with Scotia.

“I wouldn’t be surprised if a fair amount of this finds its way into NCB,” he said, adding that the group holds the island’s largest commercial bank, with Scotia being the second largest.

Beyond NCB, Theoc said investors seeking proven businesses may gravitate toward companies such as GraceKennedy, Kingston Wharves, Pan Jamaica Group and JMMB Group.

He also said Scotia’s departure could create opportunities for capital raising. He suggested the transaction could revive interest in high-quality additional public offers and other corporate transactions.

Factors shaping broader
market behaviour

Quantas Capital CEO Adrian Stokes noted that monetary policy will influence the redeployment of funds. He explained that a reduction in interest rates from the Bank of Jamaica, combined with signs of easing geopolitical tensions, could provide support for local stocks. Another factor is corporate earnings guidance, with positive outlooks from major listed companies.

Stokes, however, added that, if investors increase their exposure to overseas assets during portfolio rebalancing, then “it would dampen the positive momentum that might otherwise come from capital redeployed within the local market”. For Stokes, the delisting may spur other listed firms to consider exiting the exchange.

neville.graham@gleanerjm.com