Stock market performance: GSE return for 2017 caps at 52%

GSE 2018

The Ghana Stock Exchange has ended the 2017 year on a positive note. This comes after posting losses for two consecutive years. At the end of the last trading session on 29th December 2017, the  GSE Composite Index increased by 3.33 points to close at 2,579.72. As a result, the GSE return for 2017 closed at 52.73%. Likewise, the GSE Financial Stocks Index went up by 4.66 points to close at 2,310.58, indicating a final return of 49.51% for the year.

 

Notable companies which ended the year with positive returns are Benso Oil Palm Plantation Limited (194.23%), Ghana Oil Company Limited (144.55%), Standard Chartered Bank Ltd. (106.8%),  HFC Bank Limited (85.33%) and Total Petroleum Ghana Limited (76.5%).

Others include Ecobank Transnational Incorporated (60.00%), Standard Chartered Bank Ltd. Preference shares (60.00%), Fan Milk Limited (58.04%), Enterprise Group Limited (54.13%), Agricultural Development Bank (52.48%), Unilever Ghana Limited (50.88%), CAL Bank Limited (42.11%) and Trust Bank (Gambia) Limited (34.62%).

The remaining companies with positive gains are GCB Bank Limited (40.28%), Societe Generale Ghana Limited (32.36%), Guinness Ghana Breweries Limited (26.38%), Sam Woode Limited (25.00%), Ecobank Ghana Limited (16.92%) and Aluworks Limited (14.29%).

 

On the contrary, listed companies that recorded negative results for the 2017 year are Mechanical Lloyd Company Limited (-60.00%), Tullow Oil Plc (-36.2%), SIC Insurance Company Limited (-16.67%) and Ayrton Drugs Manufacturing Co. Ltd. (-16.67%).

The rest are PZ Cussons Ghana Limited (-9.09%), Camelot Ghana Limited (-8.33%), AngloGold Ashanti Depository shares (-7.69%), Access Bank Ghana (-1.22%) and Mega African Capital Limited (-0.33%)

 

A number of companies however made no gains or losses for the 2017 year. These are African Champion Industries Limited, AngloGold Ashanti Limited, Clydestone (Ghana) Limited, Cocoa Processing Company Limited and NewGold Issuer Limited. Others are Golden Web Limited, Produce Buying Company Limited, Pioneer Kitchenware Limited, Transol Solutions Ghana Limited and Starwin Products Limited.

Investment diversification: Smart means to diversify your assets

investment diversification

Diversification can be considered as a major important aspect of personal finance and investment. Even though it has received some criticisms from a few noted investors and financial analysts, the positive outcomes of it is still emphasised globally.

This has therefore drawn the interest of many personal finance writers and bloggers to include diversification in their topics list. Diversification has similarly been mentioned in a number of write-ups on sikasem.org.

 

In the post about Treasury bill vs. mutual fund, the importance of diversification and how mutual funds offer diversification opportunity was highlighted. The significance of diversification has also been covered in the following posts:

4 DUMB financial decisions I had made in the past

What is the ‘best’ investment product in Ghana?

Wealth tracking: Manage your wealth with Spf wealthTrack

Diversification approach

With the availability of abundant information and varying perceptions, following an effective and practical diversification approach can be challenging. Nevertheless, all diversification methods intend to reduce investment risks and volatilities by investing in a variety of assets classes or categories. At least, reducing investment risk, to some extent, can give you some peace of mind

Determining your assets mix

The main concept behind assets mix is that the growth of different assets categories can progress independently in different directions. For example, the growth of stocks is usually based on the prospects of companies. On the other hand, Treasury bills and bonds are mostly affected by prevailing interest rates.

 

In a way, you hold different kinds of assets whose values neither grow nor fall at the same time. Thus, when stocks perform poorly, one may be cushioned by Treasury bills or bonds.

The list of assets categories can be many. The common ones are stocks, mutual funds (equity, balanced, money market), Treasury bills, fixed deposits, bonds, savings accounts, cash, commodities, real estates (properties) and businesses.

 What is a good mix?

Arguably, there is no ideal formula when it comes to assets mix in diversification. How one chooses and mixes his assets ultimately depends on factors such as his financial goal, financial situation, age and level of risk he can cope with.

Your financial goal could be building long-term wealth or an alternate retirement fund. With such a goal, your assets mix would be inclined towards long-term assets such as stocks and equity [mutual] funds. In other words, you would require an asset mix made up of a high percentage of long-term investment products.

 

On the other hand, if your goal is to create a source of regular income for the immediate to medium term, you may find it useful to have a mix comprising greater percentage of fixed income products.

While focusing on your financial goals, you also consider how much risk you’re prepared to take to achieve those goals. For instance, if you’re the type who easily panics after losing some investments, then you may not be in the right position to allocate greater portion of your assets to risky investment products.

 

It is also noteworthy to consider mixing assets within the same category. That is, you don’t only diversify across different assets categories but also within the same category.

In doing so, you diversify within stocks category by investing in different stocks on the market. This must also cover different industrial sectors such as banking stocks, manufacturing stocks and insurance stocks.

 

Considering foreign stocks, beyond just the Ghana Stock Exchange could even be more helpful. This is because different markets don’t normally grow in the same direction. When Ghana Stock Exchange performs poorly, Johannesburg stock market may be performing better.

The easiest way to invest in foreign stocks is to purchase equity funds that invest beyond the GSE. Typical examples of equity funds that invest invest beyond the GSE are Databank Epack fund, HFC F-plan and SEM All-Africa fund.

 

In addition, you diversify within fixed income securities by purchasing T-bills, bonds and probably fixed deposits. Similarly, you diversify within mutual funds by investing in equity funds, balanced funds and money market funds.

You may even consider other alternative investments such as gold and antiques if you have the means.

Rebalancing your assets mix

As your assets keep growing, the original mix may become distorted due to the different growth rates of the different assets categories. Furthermore, your investment goal may change at any point in time.

Thus, it would be necessary to regularly monitor and rebalance your assets mix. Stay abreast with current market updates and make use of the information to help rebalance your assets. The use of Spf wealthTrack can also guide you to know which assets categories require adjustments.



Avoiding over diversification

As earlier stated, a few seasoned investors have had their criticisms on diversification. For example, Warren Buffett, an American business magnate and investor, made a remark concerning people’s obsession about investment diversification. He argued:

Wide diversification is only required when investors do not understand what they are doing.”

Deducing from the above statement, Warren Buffett does not entirely consider diversification as a bad practice. Rather, his concern centres on over diversification and the notion that diversification is the ‘Messiah’ of investment growth. Yes, too much of everything can be bad too.

 

In fact, over diversification can even hold you back from potential earnings. For instance, anyone who might be precisely utilising the GSE Composite Index (used to track all stocks on the exchange) for his diversification approach may not be making more returns as the one who rather focus on a few profitable stocks on the market.

This is because even though the stock market records negative returns in some financial years, a few individual stocks make huge gains in the same financial years.

 

It may similarly be needless to invest in numerous mutual funds in the name of diversification. Don’t forget that the investment strategies of most collective investment schemes in Ghana follow similar patterns. At least, a look at my previous post on foundational stocks can give you a clue.

 

Selecting a few good schemes based on past fund performance and reputation of fund managers can be a good way to go. Essentially, get to know your mutual funds so as to have a vivid picture of what they invest in. In that way, you avoid stashing your money in repeated portfolios.

 

To conclude, diversification of investment can be very useful in reducing one’s exposure to market volatilities and other investment risks. However, it must not be like spreading your tentacles everywhere with no focus.

The main point is to focus on a few and manageable number of assets in different categories while considering your financial goals.



Rates on mutual funds decline due to market losses

mutual funds decline

The poor performance of the stock market seems to be having negative effects on the returns of mutual funds. Until the 6th of September 2017, major mutual funds in the country had been riding on the Ghana Stock Exchange for their continuous gains. This increasing trend ceased to continue following the recent drop in share prices on the stock market. The year-to-date return of the Ghana Stock Exchange, which peaked at 45.53% on 6th September 2017, continuously dropped to 35.67 as of 22nd September 2017. Due to this downward trend, rates on mutual funds decline in response. Major equity and balanced funds have since registered some losses.

The year-to-date return of Databank Epack, for example, has dropped from 35.32% (recorded on 6th September 2017) to 29.37% as of 22nd September 2017. In the same period, Databank’s Bfund dropped from 31.50% to 28.37%. Similarly, SAS Fortune fund (an equity fund managed by Strategic African Securities) declined from 41.20% as of 5th September 2017 to 37.15% on 22nd September 2017.

Other investment funds experiencing decline in their rates include FirstBanc Heritage fund, HFC Equity Trust and Gold Fund Unit Trust. The rate on FirstBanc Heritage fund has slightly declined from 34.89% as of 4th September 2017 to 32.68% on the 22nd of September 2017. Rate on HFC Equity Trust also declined from 26.89% as of 7th September 2017 to 23.72% on 22nd September 2017. Finally, rate on Gold Fund Unit Trust dropped from 34.56% (recorded on 4th September 2017) to 33.60% as of 20th September 2017.



Ghana Stock Exchange suspends trading of CPC shares

registrars of ghana stock exchange

The Ghana Stock Exchange (GSE) has suspended trading of Cocoa Processing Company Limited (CPC) shares with effect from August 30, 2017.

According to the GSE, CPC has failed to meet its continuing listing obligations in spite of several promptings. The obligations are failure to submit financial reports and failure to conduct Annual General Meeting.

The suspension of trading in CPC will be in force until September 13, 2017, which is the deadline for the company to rectify the anomalies. Failure to do so will attract further sanctions as per the GSE Listing Rules.

Source: Ghana Stock Exchange

Could it be good time now to buy EGL shares?

Enterprise group rights offer

Very recently, shareholders of Enterprise Group Limited (EGL), during an annual general meeting held on 8th August 2017, approved a proposal by its board of directors to issue rights worth about $50 million.

The announcement of the rights offer seems to have triggered investors’ interest in EGL shares, reflecting on its performance on the stock market. In fact, the share price of EGL has increased from GH¢2.68 on 8th August 2017 to GH¢3.65/share on 21st August 2017, translating into 36.19% in the two-week period.

 

As a gentle reminder, rights are additional shares issued by companies to raise money from existing shareholders. One peculiar trait about rights issue is the discounted price at which shareholders pay for the shares.

That is to say, shareholders who qualify for rights issue usually pay below the prevailing market price to acquire the additional shares (rights).

For example, if the prevailing price of a company’s share on the stock market is GH¢3.5/share, the company may decide to issue rights to existing shareholders at a price of GH¢3/share. Thus, the more rights a shareholder acquires, the more he benefits from the discounted price.

 

Now, back to the EGL rights offer. Interestingly, the proposed price for the EGL rights issue is expected to be higher than the trading price on the Ghana Stock Exchange. To be specific, the price for the rights offer is to be fixed at GH¢6 per share, far higher than the current trading price of GH¢3.65/share (as of 21st August 2017).

This therefore appears to contradict the usual manner of issuing rights whereby shareholders buy at discounted prices.

I believe by now you may already be asking why you should even buy at such an exorbitant price in the first place. However, before you begin to lose hope, kindly be patient for the little explanation below.

 

According to the board chairman of Enterprise Group, Trevor Trefgarne, the GH¢6 per share is the effective value of EGL as established by the transaction. This price, according to him, was arrived at based on advice from Boulders Advisors Limited, after a fair valuation of the company’s shares.

 

Further explanation was that the market price of EGL on the GSE would by default go up to GH¢6 per share after the rights issue. This follows a resolution passed at the meeting to increase the company’s authorised shares from the current 200,000,000 to 1,000,000,000 in line with the proposed rights issue as per the regulations governing the GSE and company’s Act.

Thus, even though the price of the rights offer is expected to be pegged higher than the market price, it does not necessarily take away the usual benefits associated with rights issue.

Benefiting from EGL shares as an investor

Since the market price of EGL is currently GH¢3.65 per share (as of 21st August 2017), it means that EGL is being traded at GH¢2.35 less than its intrinsic value of GH¢6 per share.

In other words, EGL shares are being traded at a discount of about 39.17% (as of 21st August 2017). This may sound good to investors who wish to take advantage of the situation.

 

For example, an investor who had purchased EGL shares on 21st August 2017 (at GH¢3.65/share) expects to gain 39.17% return in about three months’ time, during which the rights issue process is estimated to be completed.

Remember that EGL had recently been proposed (by sikasem.org) as one of the foundational stocks on the stock market. Hence, buying a handful of EGL shares can be worth it.