Investors return to equities

…As recovery exceeds expectations

In a sharp contrast to popular expectations that the local stock market might pick up slowly this year after a terrible performance last year, the local bourse is giving investors much reason to rethink their investment plan.

Leading Investment houses in Accra report that investors are clearly shifting their portfolios in favour of stocks, with hikes in traded volumes giving credence to their observation. For weeks now, stocks exchanging hands run into millions for weekly trades, a new trend to the previously luck luster activity on the Ghana Stock Exchange.

Lambert Keriba, an analyst with First Atlantic Merchant Bank Brokers, comment that investors seem to be ending their year-long wait-to-see attitude they adopted since events turned out to be unfavourably for deals in stocks.

The GSE All-Share Index edged 69.5 points from prior week’s close to close last Friday at 6,518.88 points, with average returns to equities standing at 16.99%. Thirteen equities witnessed price changes last week, from which nine were appreciations with four being laggards. The laggards were all from the financial services sector, an industry group whose performance is one of the best. More stocks have seen price appreciations in recent weeks. A total of 4,662,061 stocks exchanged hands last week.

With the impressive feat achieved just a month into the second quarter, most equity analysts are beginning to revise their notes.

Many had predicted that the recovery will be quite slow in 2010, with a much exciting performance expected in 2011.

“Investors’ response will likely be slow this year, based on past trends. Positive expectations on the market usually resulted in impressive performances in after two years,” predicted a leading analyst with one of the country’s investment houses at the opening of the year.

With a further decline in the central bank’s prime rate to 15%, and the expected further decline in treasury rates, the equities market can only be expected to improve further. Treasury rates have plummeted further since the announcement. The rate on the 91 days instrument has fallen to 13.27%, whilst the rate on the 182 days instrument fell to 13.74%. The one year instrument is 14.50%. This clearly make money market investments less attractive now.

The downward movement in inflation for an eighth consecutive time to 13.32% in March has also been a positive factor influencing the course of the equities market.

Year 2009 was a bad year for the Ghana Stock Exchange, ending the year as the least performing market in Africa with average returns dropping -46.58%. This resulted from the effect of the global financial crisis which began to be felt in the fourth quarter of 2008.

A migration of the Exchange from paper certification to electronic book entry securities under a new automated Trading System also had a toll on the bourse, since investors needed time to adjust to new systems. The 2009 market performance was in sharp contrast with that of 2008, as that year proved to be one of the best in the history of the Exchange with the bourse making a gain in the GSE All-share Index of 58%.

Source: Financial Intelligence (Charles K. Amoah) also available on www.fighana.com