Stock market hits lowest level in nearly 2 years

Ghana’s stock market continues to record a bearish performance, as the market index dropped to its lowest point in almost two years

The GSE Composite index (GSE-CI) slowed to the lowest level when it recorded a year to date drop of -11.76 percent, and this included a -6.94 percent year to date decline for the financial stocks index (GSE-FSI), as at Friday, August 23, 2019.

The drop is the markets lowest point reached since it recovered from a similar decline in the performance of the GSE-CI, recorded on May 08, 2019, at -10.89 percent and -10.19 for the GSE-FSI.

The GSE Composite Index (GSE-CI) measures the weighted average price changes of all the equities listed on the market, and the GSE Financial Stock Index (GSE-FSI) – tracks the weighted average price changes of financial services equities.

The decline in the GSE-FSI has largely been attributed to the slowdown in the performance of the financial services industry. However, the decline in the GSE-FSI since the beginning of this year has not been as fast compared with the decline of the GSE-CI and so the data indicates there are other factors at work too.

Nevertheless, there is no doubt that the banking sector clean-up that began in August 2017 has had impact on the performance of the stock market.

According to some market analysts, investors have been selling shares to free up cash as they contended with the fallout from banking reforms executed over the past two years which have left deposits locked up in failed financial intermediation institutions.

The Bank of Ghana (BoG) announced the completion of the banking sector clean-up following the revocation of the licenses of nine universal banks, 347 microfinance companies, of which 155 had already ceased operations, 39 microcredit companies or money lenders, 10 of which had already ceased operations, 15 savings and loans companies, eight finance house companies, and two non-bank financial institutions that had already ceased operations.

However, data suggests that other factors, such as relatively higher-yielding and less risky investment options in fixed income securities, generally inadequate liquidity in the economy, disappointing corporate financial performances and worries by foreign investors as to exchange rate stability, are contributing even more to the bearish market for equities.

Besides this, there are worries that the Securities and Exchange Commission may be about to revoke the licenses of several stockbroking and investment schemes, through which investors own equities and this could conceivably lock up investors’ holdings for some time.