Foreign investors equity holdings grew by 13 percent in 2019, according to the financial sector review report released by the Bank of Ghana.
The review shows that foreign investors equity holdings increased to GH₵5.994 billion at the end of December 2019 as compared to GH₵5.38 billion same period in the previous year.
The Bank of Ghana explained that, the increase in foreign investors’ equity holdings at End-December 2019 suggests increased investor confidence in the Ghanaian economy. The central bank is optimistic that this may help to further strengthen the local currency.
According to the report, not only has total foreign investors value of equity increased in the period under review, but also their debt security holdings. Foreign investors debt holdings increased by 5.3 percent at End-December 2019 to GH₵29.1 billion, as compared to GH₵27.6 billion at End-December 2018.
The Bank of Ghana stated that these indices provide a broader view of the status of the bourse and helps identify potential risks that may arise on the market. Broadly, the GSE was assessed to be bearish in the period under review, with the risk of capital flight reducing.
The central bank stated that the assessment of the capital market focused on the performance of the Ghana Stock Exchange (GSE) and the risk of capital flight.
The risk of capital flight, the bank explained, was measured by foreign investor participation in the market, while the performance of the bourse was captured by the Stock Market Performance Indices (SMPI).
The Bank of Ghana pointed out that the SMPI captures four dimensions of the GSE performance: – access, size, efficiency, and stability of the market.
The analyses of the major dimensions showed that the GSE efficiency index of the stock market reduced. The Bank of Ghana explained that the decline was as a result of an increase in the percentage of shares with zero returns year-on-year by 3.53 percentage points.
The increase in the percentage of shares with zero returns on the bourse, according to Bank of Ghana, is an indication that there is some obscurity on the market in terms of information accessibility since prices are not responding in tandem with firm specific developments.
The Bank of Ghana further explained that, “a well-developed stock market should provide the opportunity for investors and participants to allocate capital to productive investments to earn a return without incurring high transaction costs”.
The access dimension of the bourse also declined marginally in the period under review. Bank of Ghana further explained that the access dimension captures market concentration and is measured by the Herfindahl Hirschman index (HHI), the share of the largest ten firms in terms of total market capitalization and trading volumes.
“The shares of total volume traded and the total market capitalization by the largest ten firms increased by 1.78 and 0.97 percentage points to 91.42 percent and 99.38 percent respectively. The results show that a significant part of the GSE performance is driven by the largest ten firms”.
Additionally, the report revealed that the stability index on the stock market improved. Stability on the bourse measures the ability of the market to contain volatility in price movement of stocks.
The variables considered under the stability dimension are the price to earnings ratio, price volatility index and the percentage of stock with negative returns.
Bank of Ghana stated that the improvement in the stability was driven by the reduction in the volatility of stock prices.
