Uncertainties in the Ghana stock market due to the extended financial sector cleanup has resulted in a fall in trading, causing the Ghana Stock Exchange (GSE) to record its poorest performance since July 2017.
The Summary of Macroeconomic and Financial Data released for the month of November 2019 by the Bank of Ghana (BoG) recorded a GSE Composite Index, which measures the performance of the entire market, of 2150.7 for October 2019 with the last time the Accra bourse recorded such a figure being July 2017.
The October 2019 figure also represents a 24.4 % shrink of the GSE as compared to the 2,844.8 figure for the same period the previous year.
The apex bank’s major reforms in the financial sector led to the collapse of about nine banks, 347 microfinance companies, 23 savings and loans firms and 53 fund management firms.
It took a toll on the Accra Bourse which is mainly driven by the financial industry.
Low liquidity to invest in the stock market could also be a factor contributing to the inability for individuals to invest excess cash.
Market capitalisation – the value of all publicly-traded shares on the GSE – fell to GHS55.5billion in October 2019 as compared to the GHS64.3billion recorded within the same period in the previous year, a 13.7% dip, showing the bearish nature of the GSE, which recorded a year-to-date shrinking of the market cap by 9.2%.
The market cap of GSE financial stocks alone fell by 27.9%, comparing the same periods of October 2018 (GHS 15.8 billion) to October 2019 (GHS11.4 billion) with a huge year-to-date decline of 21.9%.
GSE analyst William Mensah explained to ClassFMonline.com that: “People will go in and buy shares when they are confident about the future of the economy”.
He lamented the “low investor sentiments”, underscoring that “people are not too confident about where we are going, mainly because of the uncertainties resulting from the cleanup in the banking sector, which was necessary, but financial markets don’t like uncertainty”.
In his opinion, the BoG did not handle the financial sector sanitisation in a way that will attract investors, insisting: “If we had just taken one action…waited and taken the cleanup, that would have been the best approach”.
He said the current situation has resulted in a preference for investors to cash in, yet others are not willing to buy.In addition, he explained that “all the big guys who usually buy are not buying; international investors are not buying a lot. There can be international reasons and there can be domestic or maybe other markets are doing better, so, they will rather move their monies there”.
Mr Mensah said pension funds and mutual funds who are major domestic players are holding back due to so many doubts.
He attributed the trend to “demand and supply imbalance”, explaining: “People are selling their shares and no one is buying” resulting in prices falling drastically.
According to him, people are eager to sell because of financial difficulties which stem from the loss of jobs as a result of company meltdowns, locked-up funds and other factors.
He observed that companies with good financial performance have had their share prices dropping on the contrary, as a result of the current developments.