The Ghana Stock Exchange incurred further losses at the close of last week, driving the year-to-date loss on the benchmark composite index to 6.67 percent, with analysts now predicting that the outlook for the bourse is tied to the raging coronavirus pandemic.
The exchange’s composite index touched 2,106.58 on Friday, its lowest level since July 2017.
Financial stocks, despite the strong 2019 earnings reported by banks, have done worse than the total market, losing 9.48 percent year-to-date and 10.83 percent since a year ago. In year-on-year terms, the total market index has fallen by 11.93 percent.
Although the market was already in negative territory before the coronavirus disease broke out in the country in March, it seemed to be responding positively when companies began issuing their 2019 financial statements, but this was quickly snuffed out by the pandemic, Head of Research at Databank Alex Boahen told Business24.
Despite the negative returns, trading on the bourse was actually higher in the first quarter of the year—with a turnover of GH₵76.85 million—than the same period last year, which recorded a turnover of GH₵39.48 million.
Investors, Boahen said, have become concerned about the economic effects of COVID-19 and its resulting tough restrictions, driving down the market’s performance.
“COVID-19 is a real killjoy, looking at the fact that it popped up at the time that the bourse started seeing some recovery, and that was a major drawback to the market,” he said.
“The outlook for the market is tied to this pandemic, as investors are now more focused on the virus than the market fundamentals. We can have companies doing brilliantly, looking at the market basics, but as long as the pandemic lingers on, the market fundamentals won’t be of much importance to investors.”
The decline of the bourse is also linked to investors being attracted to government securities, which are in direct competition with equities, said financial analyst Jerome Kuseh.
The pandemic will lead to “significant slowdown in business activity, significant job losses and resultant loss of income, which will lead to more selling of stocks as people look to raise money to buy basic consumables,” he said.
“We will also see more foreign investors wanting to exit the market and more flight to safety—where people will prefer bonds whose rates are guaranteed.”
In another sign of worry, last week the International Monetary Fund confirmed projections that Ghana’s economic growth will slump to 1.5 percent, the weakest in almost 40 years, as a result of the coronavirus crisis.
If the bourse’s losses persist till mid-year because of the pandemic, the market could end the year in the negative, Kuseh projected.
According to Boahen, while almost all equities are at risk, “MTN (the mobile network operator) is going to be the biggest winner of this situation because people are working from home and will consume more data.”
As at the time of writing, Ghana’s coronavirus cases had risen to 641, with eight deaths and 83 recoveries. It is not clear, however, when infections will reach a peak, with contact tracing and testing being ramped up as the authorities try to “get ahead of the virus”.