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Capital Markets

Limited gains made in the trading of equities on Ghana's stock exchange make fixed-income securities a central component of the country's capital markets.

The Ghana Stock Exchange (GSE) was founded in November 1990 and enforces the rules and regulations for companies seeking to publicly list shares on the exchange. The GSE works under the stipulations set forth by the Securities Industry Law 1993 (PNDCL 333) and its subsequent amendments. The Securities and Exchange Commission (SEC) is tasked with setting policy to ensure an efficient and transparent securities market for listed companies, investors, and intermediary brokerage firms. There are currently 27 publicly listed companies, 10 brokerage firms, five mutual funds, and one unit trust company listed on the GSE.

The total 2014 Ghana Stock Exchange GSE-Composite Index dropped by 22.9% when adjusted to current exchange rates with the US dollar. This was a drastic turnaround from the 44.8% US dollar return recorded during 2013. The total volume of shares traded during 2014 declined by 33.71% YoY to just 207,496,133. Financial stocks again accounted for the largest share of market liquidity in terms of the volume of financial stocks traded during 2014. Six out of the top 10 most traded stocks were financial stocks in 2014, led by Cal Bank, which contributed 38.30% to total market liquidity, and Ecobank Transnational Incorporate, with 11.01% of total liquidity in Ghana’s capital markets. Despite failing to meet the 71.81% annual returns of 2013, the GSE-Financial Stock Index, a tracker of the performance of financial stocks listed on the exchange, again carried the burden of the GSE Composite Index, with a 2014 return of 25.58%.

The total capitalization of Ghana’s equities market increased by just 6.8% YoY to $16.23 billion at end-2014. This rise was fueled primarily by increases in the price of listed equities in the financial services sector, which at 21% was the second largest contributor to total market capitalization. Despite share prices remaining relatively flat during 2014, the mining sector is by far the leading contributor to market capitalization at 74%. That 95% of total market capitalization is held in the equities of just two sectors means that Ghana’s publicly listed mining and financial services firms have a dramatic influence on the overall performance and liquidity of the country’s capital market. Both the distribution sector as well as the food and beverage sector accounted for approximately 2% of the market capitalization at end-2014. Manufacturing held approximately a 1% share of market capitalization, while insurance, agriculture, and exchange traded funds (ETFs) represented less than 1% of total market capitalization.

Despite continued gains in the trading of banking equities, the total value of shares traded on the GSE declined by 24.15% YoY in 2014 to just $87.25 million. Shares from publicly listed banking companies again lead the Ghana Stock Exchange’s trading value during 2014. Cal Bank led Ghana’s stock exchange again in 2014, with the total value of its stocks traded during the year accounting for 20.64% of the bourses trading value. This was followed by Ghana Commercial Bank in second place with 16.91% of the total value of stocks traded in 2014.
The consolidated financial sector accounted for 44% of total market liquidity in terms of volume in 2014 and 57% in terms of value. Compared to 2013 volume liquidity and value liquidity figures of 82% and 60% respectively, the performance of the financial sector in 2014 indicates an overall consolidation of value invested in stocks of the financial service industry. The insurance sector followed financial services as the second highest contributor to overall volume liquidity and value liquidity in 2014, at 28% and 20%, respectively. Distribution accounted for 12% of market liquidity in terms of volume in 2014 and 7% in terms of value. Food and beverages also contributed 7% to value liquidity as well as 7% to volume liquidity. The agriculture sector accounted for just 2% of 2014 volume liquidity and 4% of value liquidity.

The funds management industry plays an important role in the functioning of Ghana’s capital markets. The funds management segment of the capital markets is composed of collective investment schemes (CIS), investment advisory services (IAS), and pension funds, all of which recorded significant growth during 2014. The number of IAS firms grew to 103, a 22.6% increase from 2013, and collective investment schemes reached 168 total licensed fund management operators, of which there were 103 investment advisors (fund managers), 24 mutual funds, 18 unit trusts, 18 custodians, four trustees, and one exchange traded fund (ETF). These figures are all set to increase, after 34 new license applications were approved at end-2014. The total funds under management in Ghana’s funds management industry reached $2.05 billion at end-2014, marking a 126% YoY increase. That phenomenal growth breaks down to $1.65 billion for investment advisory services, $123.69 million for collective investment schemes, and $282.63 million for pension funds.

Due to ongoing macroeconomic volatility and the resulting risk aversion among major investors, $1.31 billion (73.6%) of the consolidated fund management industry’s portfolio was allocated to money market instruments in 2014, particularly government fixed-income securities, compared to just 60% at end-2013. Fixed deposit assets represented $29.87 million (3.1%) of funds management investments at end-2014, while just $347.37 million (17.6%) of the funds management industry’s consolidated portfolio entered Ghana’s equities market. The remaining $93.34 (5.7%) million were invested in other categories of financial assets.

Ghana’s broad money supply, including foreign currency deposits (M2+), grew by 23.3% YoY at end-3Q2015. YoY growth of Ghana’s broad money supply stood at 33.6% at end-3Q2014, a dramatic increase from the 19.1% growth in M2+ recorded during 2013. This upward trend in the growth of the country’s money supply was largely driven by the 57.7% increase in Net Foreign Assets (NFA), which in turn was sustained by the commercial banking sector’s 31.1% consolidated growth in Net Domestic Assets (NDA) during 2014.

The comparatively limited gains made by GSE are somewhat compensated by the fixed income market, which is particularly active in Ghana despite the decline in options for new sovereign issues in the debt market having lead to increased spreads on international bonds. As of 2013, Ghana received a rating of B+ and B from Fitch and Standard and Poor’s, respectively. Ongoing volatility in macroeconomic forces coupled with local economic and political uncertainty in 2014 again edged investor preference away from equity markets in favor of shorter-term fixed income treasury securities. Yields on 91-day and 182-day treasury bills rose from 19.22% and 17% at end-2013, respectively, to 25.03% and 22.5% at end-2014. Yields at end-2015 reached 25.2% and 25.9% for 91-day and 182-day treasury bills respectively. This continuing upward trend in fixed-income security yields reflects wide-scale conservative valuation of the ability of the GSE to match the high yields provided by government borrowing.

Further evidence of the key role played by fixed-income instruments in supporting Ghana’s capital markets, the GSE, together with a group of several other stakeholders, introduced the Ghana Fixed Income Market (GFIM). The creation of the GFIM marks a collaborative effort to ensure a fair, orderly, transparent, and efficient secondary market for the trading of market for the trading of all fixed-income and other similarly structured financial assets. The GFIM will be further enhanced by the integration of Bloomberg’s E-Bond system as a principal tool for market surveillance and electronic trading in the country’s $7.7 billion fixed-income market that will continue to form a pillar of the local capital markets moving forward.

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