Cedi to stabilise versus dollar

…but stocks still in limbo

Market Watchers say the Ghanaian cedi might see some respite soon, after months of consistent decline to its major trading counterparts but much cannot be said of the stock market performance as many uncertainties stands in its way to recovery.

The expected stabilisation has been inferred from the planned visit of US President Barack Obama, and the US$ 535 million granted the country by the World Bank in support of its budget.

It is expected that, visiting US officials and investors will boost local demand for the cedi, saving it briefly from recent slides.

The cedi’s freefall that began in the last quarter of 2008 had been sparked by pressure from the country’s high current account deficit, lower external reserves and dwindling foreign exchange inflows as a result of the global recession.

The slump in the local currency has been worrisome for individuals and corporates, as it impacts negatively on all aspects of the economy.

The cedi has seen one of its largest drops this year, depreciating by 20.06% to the dollar, 34.79% to the Pound and 20.98% to the Euro.

The dollar, pound and euro were quoted to the cedi at GH¢ 1.2141, GH¢ 1.7694, and GH¢ 1.6868 respectively at the beginning of January this year, but now sells for GH¢ 1.45755, GH¢ 2.3849 GH¢ 2.0407 per last Friday’s Interbank rates.

Collins Appiah, Research Head at Gold Coast Securities explains that even though support to the Ghanaian economy from the Bretton woods institutions would have an impact on the performance of the local currency, it is not expected to lead to an immediate stabilisation.

Mr Appiah noted that, the cedi’s performance against the pound and euro would however largely be dependent on how the dollar performs against the other two major currencies on the international currency markets.

However, the third quarter of the year is here, and market analysts say it is a make or break for the local equities market.

There has been declines all year on the Ghana Stock Exchange (GSE) and the benchmark measure of market activity on the Accra bourse, the GSE All Share Index has sunk to a historic low of -48.01%. Comparing with the worst ever year end decline on the GSE of -29.85% in 2005, analysts are in a fix as to whether the year could end better.

By the close of trading last Friday, the GSE remained deep in red even though the week saw a rare rise in its index of 122.47 points, witnessing gains in three out of the four trading days.

Collins Appiah, Head of Research for Gold Coast Securities told the Financial Intelligence in an interview that the GSE historically records its peak performance in the third quarter, and it is expected “we would see an improvement in the market as we enter July”.

“In the fourth quarter, people normally cash out of the market in preparation for the festivities and therefore, if the market is not able to recover in the third quarter, then there is little hope for market recovery this year,” he said.

He, however, noted that it is still early to tell whether the equities market will make some recovery now, as a number of factors remain uncertain.

Investor appetite for higher interest rates in a bid to mitigate the impact of a weakening Ghanaian cedi and rising inflation has spurred rates on short-term government securities to a 6-year high that has made it the most attractive investment today.

The problem will be compounded if the central bank decides to push further up its policy rate in anticipation of a further rise in inflation.

The government’s decision to accept the challenge of the Bretton woods institutions to abolish subsidies on utilities, such as electricity and petroleum could have an impact on inflation and interest rates in the future.

The GSE-All Share Index ended the past year with an impressive 58% performance, which was among the best worldwide. Total market capitalization recorded an increase of 44%, ending the year at GH¢17.9 billion.

Market turnover as measured by the volume of shares traded saw a 185% increase, reaching 531 million shares.