Recovery now for 2010
Sampson Akligoh, a Senior Economic Analyst at Databank Financial Services Limited, has noted that equity investors on the Ghana stock exchange took the opportunity to cash out of the market when some signs of recovery emerged, pushing further ahead expected recovery on the Ghanaian bourse.
According to him, market recovery will remain sluggish through the remaining sessions in the year as fixed income yields remain high and attractive.
He as a result foresees the Databank Stock Index (DSI), a capitalization weighted index developed by the Databank Group, closing 2009 at a Year-to-date loss of between 20% and 22%.
In an interview with the Financial Intelligence, Mr Akligoh noted that this trend of exit will not be sustained, saying that the strong earning results during the immediate quarter should sustain the seemingly confidence that is now emerging.
“With a decline in the P/E ratio from 13.1 as at the end of 2008 to 10.45 as at October, 2009 the market has become relatively cheap, and I believe this will spur investor interest in the stock market especially into 2010,” Mr Akligoh noted.
“This is likely to be supported by improved nine-month figures by most of the listed companies.
“With inflation showing signs of softening, interest rates are also likely to decline which could ease the current obsession with the fixed income market in favour of the equity market,” the analyst commented.
He further explained that the improvement in the global economy combined with the relative stability of the cedi is likely to facilitate renewed interest in the stock market, especially if interest rates decline in the next six months.
Commenting on recent Right Issues of listed banks, Mr Akligoh pointed out that current conditions on the market does not make it ripe to raise money through the equity market, but he was quick to add that, “investors deal with companies on their own merit during periods of systemic risk. Most of the companies undertaking the right issues are likely to be successfully because they are strong growth and value companies.”
Standard Chartered Bank’s show of significant resilience during the crisis, he noted, makes it a good stock investors should not shy away from despite the general stock market pessimism.
He confirmed the FI’ assertion that the Ecobank and SG-SSB offers were also billed for success.
He noted that even though banks could have routed for a new deadline for recapitalization in view of current challenges by means of an industry-wide consensus, “the idea of capitalization as it pertains to most banks operating in Ghana is a matter of necessity rather than a norm; as it will enable them to play important roles in the anticipated oil economy”.
He acknowledged that the options of private placement as being done by the non-listed banks such as IBG and Fidelity was in the right direction, adding that since our debt market is underdeveloped, raising long term debt may be costly compared to equity capital.
Dilating on factors that culminated in declines on the Ghanaian bourse this year, the seasoned analyst noted that it stemmed from three key dynamics. “The first being that most shares were overvalued as at the end of 2008; the second being that interest rate hikes led domestic investors to shift their funds towards the fixed income market; and finally the fallout from the global financial crisis kept investors away from Ghana’s financial market prior to Q3-2009 mainly due to currency risk exposure”.
By:Charles Amoah
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