Analysts have intimated that investors’ confidence on the stock markets have rebounded in the new year, however, the market remains cautious due to the existing risks and associated inflationary pressures on the economy, which could have a spill over effect into the market.
A number of global factors including the low-interest-rate environment in advanced markets as well as the high market valuation on the back of the consistent higher performance of foreign markets for the past two years, according to Analysts have contributed to the boost on the stock market.
In Ghana, the local bourse gained momentum in 2021 showing signs of a bullish stance of investors as investors keenly look to take advantage of the current undervaluation of equities, analysts indicated.
The historical price to earnings (P/E) ratio of the stock market has been around 12x; however, currently this ratio is below 5x, indicating that the entire market is hugely undervalued.
The Head of Research at Databank, Alex Boahen, commenting on the stock market’s position opined that notwithstanding the current position of investors, the market remains cautious due to the global crises and its economic implications.
“We are still cautious because there are issues with the economy. The suspension of the fiscal deficit limit of 5 percent of GDP could raise a lot of concerns with regard to the country’s debt levels and its implications on the economy.”
The improvement in investors’ confidence on the Ghana Stock Exchange (GSE) is evident as “Investors [including institutional ones] are beginning to take advantage of this position of the market, especially the pension fund managers who most often restructure their portfolio at the end and start of each year,” he added.
The GSE Composite Index (GSE-CI), which is a benchmark index that measures the weighted average price change of all the equities listed on the market, improved its return from a year-to-date position of -18.23 percent at the start of the last quarter of 2020 to close the year at -13.98 percent.
At the end of trading on Wednesday, January 13, the benchmark index advanced by about 13 points to 1,969.25, with a 1.42 percent year-to-date return, while the market’s capitalisation increased to approximately GH¢54.67 billion.
The market’s performance went quite low for about two to three years. To correct this, most of the stocks on the market were undervalued. This has been factored into the decision of investors currently, given that prices of most stocks are undervalued and this seems the opportune time to get back into the equities market.
Stock market analysts hold a common view that the current position of the investor is largely going to drive the market this year, because from the start of the third quarter of 2020, the market had started to rebound, adding that instead of the supply side increasing in volume, the demand for stocks rather increased.
In a nutshell, even though in the year 2021, the novel coronavirus still exists with its accompanying economic mishaps, with current rebound in investors’ confidence as evidenced in various financial markets, this shows some prospects going forward in the Ghanaian economy.
However, inflation seems to have lost control once again shooting up to 10.4 percent to close the year 2020, posing a risk for the New Year.
