Stocks Disappoint

Stock returns are likely to finish the year in negative territory as global events continue to weigh down heavily on the local bourse, analysts have told the Business & Financial Times.

The apparent price-correction that began in the market after June has been overwhelmed by the contagion-impact of adverse global developments, with investors in financial stocks bearing the brunt of the debacle.

The Ghana Stock Exchange’s (GSE) main index posted a year-to-date change of negative 5.99 percent during Monday trading, and the Financial Stocks Index (FSI) finished with a return of negative 17.61 percent.

“It’s very likely the market will end the year in negative territory, unless we see significant appreciations in ‘big-cap’ stocks like ETI, Stanchart and Tullow which doesn’t look like happening,” said Derrick Mensah of SIC Financial Services Limited.

Jeff Foli, a senior analyst with IC Securities Limited, also predicted: “I think the year is going to end probably flat, because I don’t see too much movement from where we are now.” Both the GSE’s main indices have reversed the gains achieved in the first half of the year, when the overall market index posted a year-to-date return of 18.9 percent -- beating yields on Treasuries which had continued their fall as the central bank eased policy to boost growth.

After gaining 16 percent in the first half, financial stocks have plunged more deeply in the second half compared to other securities on the market. This being the year of 13.6 percent GDP growth, oil production, record foreign direct investment inflows and sustained macroeconomic stability, the GSE’s performance is a disappointment for most investors and fund-managers.

But the two analysts said despite strong local fundamentals, the balance of risks has favoured the ailing global economy and investment climate. “There is a systemic problem globally, which is affecting global indices. And Ghana is not immune from this given that 80 percent of the investment capital in the stock market is from foreign institutions,” Jeff argued.

Derrick agreed: “The main impact is what is happening in Europe. As a result of the eurozone crisis and uncertainties, global investors have been disinvesting; and there’s a general loss of demand and appetite for risky assets.”

The two said the GSE has only been tracking the performance of key global markets. A December 14 survey by the B&FT of 44 markets across the developed and developing world showed only three were posting positive year-to-date returns. The worst performers were markets in eurozone countries.

In the light of global woes and approach of the festive season, local-investor fever for sell-offs has been rising, Derrick said. The relative illiquidity of the GSE is a problem, too, Jeff said, pointing out this feature of the market makes stocks traded on it uncompetitive.

But this illiquidity has worsened since the tide turned in June, when an average 1.6 million shares were traded each week. Now, only about a quarter of that is traded.

“There are not much free-floating stocks because of the presence of large institutional investors in the market. These are people who, on the average, hold their stocks for five years before selling.
“I also see a lot of apprehension and risk-aversion. Everybody is waiting to see what will happen in the election year, because often that is a time when interest rates rise and Treasuries become more attractive,” Derrick explained.

According to Jeff, because global investors have taken a step back, the local market has been affected in terms of fund flows, which if they had come would have offered a fillip to market activity.

Hope for a silver-lining

The requirement for listed companies to boost their issued shares to GH¢100million starting next year should help improve liquidity, Derrick said. There is also the likelihood, according to Jeff, of new fund flows in the first quarter of 2012, especially if second-tier pension fund-managers receive their allocations under the new pension regime.

These flows should help push up the prices of those stocks which will be selected by fund-managers. The other hope is that new efforts by eurozone leaders to fix the sickly union will brighten the outlook for the global economy and financial markets, and have tangible pass-through effects on the GSE.

Source: Leslie Dwight MENSAH/ B&FT