Sabrina Gordon, Business Reporter

Jason Morris, senior investment analyst at Jamaica Money Market Brokers. - File

Choosing the right strategy is important in any decision, as it will be when you are making your investment choices, but Jason Morris of Jamaica Money Market Brokers (JMMB) is recommending the 'portfolio approach', which allows for diversification.

"In considering a portfolio approach to investing, it involves looking at both your objectives and constraints," said Morris Tuesday at a JMMB seminar.

accepting risk

Your objective, he said, involves the willingness to accept risk and the ability to take the risk, the latter referring to available cash resources or liquidity.

"Ability overrides willingness," said Morris, a senior investment analyst at JMMB.

"One's need for significant cash flow reduces the ability to take risk," he said.

Taxes, legal and regulatory issues and the uniqueness of an investor's circumstances are also constraints to be taken into consideration.

A key rule that was reiterated is: 'buy low, sell high; buy high, sell higher; and protect your principal.'

The bond market, said the analyst, is currently pricey but offers opportunities.

"When GOJ bonds reach about 8 per cent, they become viable because there are investors who, when they are buying a bond, use leverage - that is, borrow a portion of the money to (finance) purchase," Morris explained.

At the same time though, Morris was quick to caution investors that the use of leverage can be a two-edged sword.

"You can't just say you are going to borrow 99 per cent and invest it, because if the bond price swings against you, then you stand to lose even more," he said.

strategy proposed

The recommended strategy proposed by Morris is to buy GOJ CLN 5-year note, as it is linked to GOJ credit which have never defaulted.

Other recommended bond instruments to buy includes Air Jamaica 2027 below a face value of $99.50 and the GOJ 2025 below $111.50.

For the fixed income market, he said investors should lock in on money market rates, as it is expected that the central bank may lower rates in 12 months.

As for the equities market, there is a broad negative signal with the hurricane season and spiralling prices.

The recommendation Morris made here is for the market to buy stocks that represent good value in the technology, industrial and financial sectors, and those equities with strong fundamentals across the sectors.

He cautioned, however, that stock market indices are likely to waver, given spiralling inflation across the Caribbean region.

On that basis, the analyst has cautioned investors against adding new equities listed on certain exchanges to stock portfolios.

"The thing to do is to stay neutral on JSE and TTSE, as well as to reduce your exposure to US equity indices," said Morris.

"Neutral means do not add any indices at this time if you do not already own the index, as we expect poor index performance for the quarter, given higher expected inflation and interest rates," he said.

portfolio diversification

Jamaican inflation for the calendar year to date April now stands at 6.8 per cent, and 1.5 per cent for the fiscal year to date.

The focus now, amid the local and global financial environment is, he suggests, is portfolio diversification to include instruments that even goes outside investors' comfort zone.

"The question is not whether to go outside your comfort zone, it is how you go out of your comfort zone, such that the risk you are taking can compensate in terms of the return," said Morris, pointing to opportunities in emerging markets such as Brazil, Argentina, Venezuela and Colombia, countries that are benefiting from the high commodity prices.

The recommendation is to buy Brazil 2037 bond on pull-back,Venezuela's BB-rated bond, which is yielding 9.8 per cent, the Colombia 2037, which has a similar rating, and Argentina Bonar13 at 12.2 per cent.

sabrina.gordon@gleanerjm.com