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Business News of Tuesday, 21 June 2016

Source: Graphic.com.gh

GSE struggles to delight investors

Return on the Ghana Stock Exchange (GSE) has plummeted to negative 11.8 percent in the first six months of the year, prompting fears among stock analysts that the depression on the equity market will end this year worse off than it was in 2015.

The sluggish nature of the GSE is a clear reflection of the lackluster performance of the listed companies, whose performance was subdued by a combination of factors, including the fiscal slippages, a tight monetary stance and the energy challenges that marred business operations last year.

In that year, return on the GSE was 11.77 percent, making it the fourth worse performer in Africa after the Egyptian CASE 30, the Nigerian Stock Exchange and the Mauritius SEMDEX.

With the fiscal challenges still continuing, inflation at 18.3 per cent and the Bank of Ghana (BoG) policy rate now at 26 percent, a Research Analyst with CAL Brokers, Mr Geoffrey Fathers Maison, told the GRAPHIC BUSINESS that investors’ appetite for stocks on the bourse should be expected to remain on the low side until the end of the year.

“I honestly do not see the market doing better than it did last year. I think that it will probably average at where it is right now or at worse, around negative 15 percent,” he said, pointing to the BoG's unwillingness to ease interest rates and its impact on competing for investment instruments.

“Honestly, it is hard now to tell someone to buy stocks when he/she can buy treasury bills and take 23 percent. Also, there are so many fixed income products out there that offer rates above the policy rate of 26 percent," he added.

Given that investments in fixed income products and treasury bills are less risky compared to stocks, Mr. Maison explained that more investors were “naturally moving their investments in stocks to less risky products,” resulting in the supply glut that the exchange is now grappling with.

That glut normally results in price depreciations, which also translate into the negative return that the GSE is envisaged to post at the end of the year.

A negative return, however, means that investments - the share - on the bourse have lost their value by the margin the return would be.

Industry sentiments

Mr. Maison's bearish sentiments on the performance of the GSE mirror the views of players in the stock market.

The acting Chief Executive Officer of NTHC, Mr. Francis Apanka, and the Head of Research at Databank, Ms. Doris Yaa Aggrey Ahiati, said in separate interviews that the exchange was expected to remain sluggish until interest rates began to ease.

“This year, I'm afraid, it is not likely to be any different and so the GSE is likely to remain level for the rest of the year. But as interest rates drop and pull down fixed income yields with them, we believe there will be a return to a better performance in equities,” Mr. Apanka told the paper on June 17.

Ms. Ahiati also explained that although the GSE “will not delight investors this year” its performance would be better than last year.

With the economy recovering after bouts of slippages last year, she said the performance of listed equities could improve, thereby bringing a positive impact on the entire exchange.

Although she admitted that the current return on the GSE was worse than it was the same period last year, she said end-of-year return would be better, albeit in the negative.

"The performance of the stock market turns to be usually driven by the macroeconomic indices. Last year, we had worse macros than we currently have. At the time, we had more banks with loans books that were not inspiring and a lot had to be written off but that has slightly improved," she said, adding that the government's actions had also resulted in an improved macroeconomic environment.

"Generally, there is some level of predictability because this year has been generally stable and it is against that background that we think this year's return will be better than last year’s," she said.

Reviving the market

Despite the sluggish performance of the GSE, the three sources said now was the right time for investors to buy stocks, given the impact on prices. With prices on the decline as a result of the supply glut, they advised that investors take the opportunity to increase their holdings in stocks, which would pay off by 2017.

On which stocks hold the key to the general improvement of the market, Ms. Ahiati and Mr. Maison mentioned those in the financial and extractive sector. The research analyst at CAL Brokers, however, explained that the bearish nature of the market made it unwise for new listings.