Following the adoption of the mark-to-market valuation approach by the Securities and Exchange Commission (SEC), investment portfolios in Ghana have reached their highest level of market values since November 2022.
The improved confidence in the market is attributed to the successful settlement of the Domestic Debt Exchange Programme (DDEP) – a government initiative aimed at reducing the country’s debt burden.
Prices, according to market sources, have improved significantly – leading to portfolio increases for investors, indicating that: “The prices are expected to rise further in the coming days, with new deposits being allocated to a new portfolio purchased at the current market value.”
This new market sentiment has come as a relief to investors who had initially lost funds due to the new directive on portfolio valuation, with some reporting that their funds have almost returned to their original amount.
Investors are reportedly seeing some increases in their portfolios, with one source noting that yesterday’s prices were the highest they had seen since the market value approach was adopted.
While some investors had initially lost funds due to the new directive on portfolio valuation, there are now signs of recovery; with one investor reporting that her funds have almost returned to their original amount.
“My funds have recovered almost to the original amount invested in a mutual fund, after I lost about a third of my funds last year GH¢44,000 due to the new directive on portfolio valuation. I now have GH¢61,000 in my portfolio out of original amount of GH¢64,000.”
Anonymous Investor
Enactment Of The Mark-To-Market Valuation
The enactment of the mark-to-market valuation approach was an initiative by the Securities and Exchange Commission to protect all classes of investors and the market’s integrity by ensuring ‘a fair and transparent playing field for both investors and operators.’
Last year, while adopting the new valuation method, the SEC had indicated that fund managers at that time were witnessing a sharp increase in redemption requests, fuelled by the prevailing high-interest rate regime and a desire to seek safety in alternate asset classes such as currency and precious metals. This elevated the need for fund managers to sell securities at a loss, which would otherwise have been held to maturity.
“The SEC has taken note of the current high-interest rate environment in Ghana, with its adverse effects on liquidity in the secondary market for bonds and high clients’ redemption requests – necessitating the sale of investment securities ordinarily designated as held to maturity.
“In such a situation – wherein interest rates have gone up and bond prices have fallen, without the mark-to-market approach and investors opting to exit for whatever reason – investors should be made to realize the investment’s value at that moment does not reflect current market conditions.”
Portion of a statement released by Security and Exchange Commission last year
This, as disclosed by SEC, explains why investors were cautioned about the risk of losing a portion of their holdings due to current market conditions – a phenomenon that is accurately captured through the mark-to-market model, which does not amount to a ‘haircut’ with investors better-off holding closer to maturity.
That notwithstanding, the Ghana Fixed Income Market (GFIM) is now expected to make available end-of-day prices for all fixed-income securities during this year. In the interim, fund managers, custodians, and trustees are directed to use average prices published by GFIM to mark-to-market their fixed-income securities.
Unlisted securities are also expected to be valued periodically, taking into account market movements, contractual cash flows, and recoverability of the underlying assets.
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