Although some stock market watchers had, earlier this year expressed optimism that the market will rebound following the payments of dividends to shareholders in the second quarter of the year, the opposite is happening instead.

The first month of the second quarter – April – saw the sluggish performance of the first quarter deteriorate further into a nose-dive, leaving even faithful equity investors in dismay.

The two market indices – the GSE Composite Index (GSE-CI) which measures the weighted average price changes of all the equities listed on the market; and the GSE Financial Stock Index (GSE-FSI) – which tracks the weighted average price changes of financial services equities have recorded continuous downward movements since the start of this year and April has proved to be the worst month so far.

The GSE-CI ended the first quarter of 2019 with a contraction of 4.58 per cent. As at May 02, 2019, the Composite Index had further contracted, recording a year to date change of -9.14 per cent.

In the case of the financial stocks index (GSE-FSI), by the end of the first quarter of 2019, it had recorded a growth of 0.07 per cent. However, it sharply fell to -6.56 per cent, as of May 02, 2019 reflecting rapidly falling share prices in April.

Explaining the current phenomena in an interview with Goldstreet Business, a Stock Market Analyst with UMB Stock-Brokers, Kofi Busia Kyei said the big institutions and fund managers are not putting funds in the stock market, due to the fall-out from the banking sector reforms.

Although few investors have started injecting funds into the market, spurring the possibility of an eventual rebound, this should only be expected to materialize getting to the end of the year, Kyei noted.

Dividends declared and paid have not helped either.

“This time round it looks like what investors are looking out for in the market is more than what the dividends being declared are giving.”

Not conceding defeat, equity analysts who at the beginning of this year were advising investors to rush into equities to enjoy an all year long bull market, have adjusted the reasons for their advice but not their ultimate recommendations. Now they point out that equity prices are about to bottom out and therefore this is the best time to buy – when share prices are at their lowest.

Despite the sluggish performance of the market, a few stocks such as Access Bank, Cal Bank, Clydestone (Ghana), GCB Bank, Ecobank Transnational Inc., PZ Cussons Ghana Ltd., Starwin Products Ltd., and Trust Bank Ltd. (The Gambia), on the market have shown some level of resilience, as they consistently recorded a price-earnings ratio (P/E ratio) of below five which translates into dividend yields of over 20 per cent which is competitive against current yields on fixed income securities such as government and corporate medium-term bonds.

However, analysts indicate that equity investors require a risk premium of at least five per cent to move funds from riskless government securities to risk-laden equities. Currently, even the best-performing equities do not offer a significant risk premium.

Besides this, yields on medium and long term bonds have been rising over the past year and show no signs of easing, as the Bank of Ghana pursues a deliberate monetary policy which aims to raise rates on medium to long term government bonds in which foreign investors are allowed to invest, so as to retain their patronage. This is making such medium to long term bonds even more attractive to investors compared against equities which are not delivering capital gains to support dividend payouts.

The performance of the market slowed dramatically during the fourth quarter of 2018, where both the GSE-CI and GSE-FSI dropped in performance sharply from year to date rises of 16.33 per cent and 13.71 per cent respectively to year to date declines of 0.29 per cent and 6.77 per cent respectively, by December.

The banking sector, which constitutes a large portion of the market, helped pull the market down, as investors have worried as to the fate of the entire industry even as profitability has dampened and recapitalization requirements forestalled the payment of dividends by most banks last year.

Furthermore, some foreign investors sold their investments because of rising interest rates in the U.S. a depreciating cedi (meaning foreign exchange losses) and uncertainties about Ghana’s economy after the expiration of the IMF programme.

According to the Central Securities Depository Ghana Ltd, foreigners accounted for 78 per cent of stock sales in the first two months of the year.