Alex Boahen, Head of Research Team at Databank, has stated that the Ghana Stock Exchange is fired up for greater performance in this new year 2022, because investors will still see value in stocks this year.
According to Mr Boahen who is also Equity and Financial Market Analyst, the price per earning ratio of GSE is 11x to 12x, which is an indication that the Ghanaian equities market is still appealing to investors.
“Given that the historical P/E ratio is between 11 times to 12 times, investors will still generally see value in stocks this year, supported by stronger economic growth.”
Alex Boahen
The P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued. Generally speaking, the lower the P/E ratio is, the better it is for the business and for potential investors. Typically, stocks with P/E ratios of below 15 are considered cheap, while stocks above about 18 are thought of as expensive.
Ghana Stocks’ Valuations May Help Extend Rally
The Ghanaian stocks rallied in 2021, snapping three years of declines, as the pandemic’s impact on the economy eased. And there are signs the market’s beaten-down valuations in terms of P/Es may spur further gains in this year 2022.
The Ghana Stock Exchange Composite Index surged 45 percent in 2021. Even so, with the price-to-earnings ratios in the West African nation remaining about half the historical levels, Mr Alex Boahen suggested the Ghanaian stock is on course to surpass the 2021 performance.
It can be recalled that the virus and the elections cast a shadow over Ghana stocks a year ago. But, with the poll successfully completed and economic growth rebounding from the slowest in almost four decades, the Head of Research asserted that investors are far more positive about the local equities, which he stated, is good for the Ghana Stock Exchange.
“The renewed confidence after the successful 2020 elections coupled with the impact of COVID-19 on the economy subsiding, brought some revival to the market. Valuations were very low, so amid signs of better economic performance, investors saw that it was a good time to get into the market.”
Alex Boahen
Future Earnings Increased
Mr Boahen noted that stocks in the Ghanaian equities market index traded at almost six times future earnings, compared with 4.5 times in early 2021. Those levels, he added, may yet prove attractive to investors.
The Equity and Financial Market Analyst therefore, expects more gains, albeit shy of 2021’s resurgence, due to lingering concerns around the fiscal deficit, inflation and currency depreciation.
In the intervening time, the Ghana Stock Exchange ended the year 2021 with the Ghana Stock Exchange Composite Index (GSE-CI) lower than what the Databank research firm predicted. Databank, in its outlook for the final quarter of the year, predicted the Composite Index to close the year at 2,817 points mark. However, the Accra bourse closed the year 2021 with 2,789.34 points.
The Ghana Stock Exchange Financial Sector Index (GSE-FSI) also ended the year with 2,151.85 points. On the other hand, the GSE ended the year with market capitalization of GH¢ 64.5 billion.
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