Imitate GSE performance returns using market weights

Investing on the Ghana Stock Exchange can be one way to secure financial independence in the long term. Notwithstanding, purchasing shares anyhow from the stock market may not yield you the desired good returns. This is likely to happen if you completely ignore the GSE composite index and your attempt to beat the market goes wrong.

Just recently, I wrote on the usefulness of GSE composite index to investors on the stock market. In the same post, I discussed about market weight and the significant role it plays when one attempts to copy or imitate GSE performance returns.

Market weight of a stock

Market weight (also referred to as Index weight) of a stock measures the degree of influence that a listed company can have on the overall performance of a stock market.

It is calculated by dividing the market capitalisation of a stock by the total stock market capitalisation. To know the market capitalisation of any stock, you multiply its share price by the total number of its listed shares. As share prices keep changing, the market capitalisations of stocks change accordingly.

Thus, the market weight of a stock may change from time to time in accordance with changing factors such as share prices and the number of listed stocks.

Impact of market weights on GSE performance returns

Since market weight depends much on a stock’s capitalisation, listed companies having higher market capitalisations would therefore have higher market weights.

Furthermore, the greater the market weight of a stock, the more impact a change in its share price can have on the GSE composite index, and for that matter the overall GSE returns.

For instance, the prevailing market weights of GCB bank and Ayrton Drugs Manufacturing are 3.07% and 0.04% respectively. In effect, a price change in GCB shares would definitely have a greater impact on GSE performance returns than an equally price change in Ayrton Drugs Manufacturing shares.

imitate GSE performance _ market weights _GCB vs AYRTON

In fact, majority of the listed companies barely have any significant impact on the GSE performance returns. African Champion Industries Limited, Camelot Ghana Limited and Sam Woode Limited are examples of listed companies whose market weights are approximately 0%

 

It is therefore not surprising that most mutual funds in the country invest in just a few of listed stocks, leaving the others out. If you take a closer look at the annual reports of the various mutual funds, you can see that the fund managers invest not even in half of the number of companies listed on the exchange.

For example, SAS Fortune fund invested in only 14 out of the about 35 companies listed on the Ghana Stock Exchange in 2015. HFC Equity Trust had similarly invested in 16 out of the 39 listed companies on the GSE in 2016. The fund managers may be doing so to concentrate more on potential performing stocks as well as stocks with high market weights.

 

See also: Investment diversification: Smart means to diversify your assets

 

Using market weights to match GSE returns

The average GSE performance return may be argued as not so impressive. Nevertheless, it outweighs earnings of other investment products, in particular savings accounts. Unfortunately, not every investor on the stock exchange is able to match the returns posted by the GSE.

You may be hearing series of positive updates about the stock market performance. Updates such as “GSE records 16.31% return in first half of the [2017] year”, “GSE begins second half of the [2017] year with impressive performance”, “GSE return for 2017 caps at 52%”, “GSE begins 2018 on a good note” and many more.

Yet, you keep wondering why these returns never reflect on your stock portfolio. Even though you have invested much on the Ghana Stock Exchange, the earnings on your stock portfolio appear to be far from the reported GSE returns.

 

One way to bridge the gap between the returns on your stocks and that of the GSE is to consider market weights of stocks during purchasing. As earlier mentioned, a lot of stocks listed on the Ghana Stock Exchange virtually have no impact on GSE performance returns due to their low market weights.

Frankly, there are some stocks that can even be tagged as ‘non-score’, due to their insignificant contribution to the GSE performance. Hence, if your portfolio is dominated by such stocks, the possibility of performing closer to the GSE return would be much less.

 

Since market weights and for that matter GSE composite index change with trading activities, it may be impossible to imitate the exact GSE returns. Nonetheless, by considering stocks with high market weights, the performance of your stock portfolio can, at least, get much closer to that of the GSE.

Your focus is to favour stocks with high market weights while taking critical look at their historical performance trends at the same time. Considering performance trends is necessary to avoid the tendency of locking up huge investments in poor-performing stocks.

In the link below, you would find the market weights of all listed companies on the Ghana Stock Exchange:

Market weights of listed companies on GSE

Stock market updates: GSE begins 2018 on a good note

GSE 2018

The Ghana Stock Exchange (GSE) has started the 2018 year with impressive results. In just about two weeks into the New Year, figures from the stock market have started showing signs of promising returns for investors.

 

At the end of trading yesterday (16th January 2018), the GSE composite index inched up to 2,817.66 points. This reflects a year-to-date return of 9.22%. In the same period last year, the stock exchange recorded 2.57%.

 

So far, 14 out of the 39 listed companies have recorded some gains in the year. Prominent ones among them are GCB bank Limited (GCB), CAL bank Limited (CAL), Ecobank Ghana Limited (EGH), Enterprise Group Limited (EGL), Ecobank Transnational Incorporated (ETI), Ghana Oil Company Limited (GOIL) and Total Petroleum Ghana Limited (TOTAL).

 

Total Petroleum, for instance, has recorded a year-to-date return of 36.26% as of 16th January 2018.This is followed by GCB bank, which has so far recorded 34.46% in the same period.

Similarly, Ecobank Ghana Limited has posted a year-to-date return of 18.29%, followed by Societe Generale Ghana Limited, with 14.63%.

 

Other companies with positive results include Ghana Oil Company Limited (13.75%), Ecobank Transnational Incorporated (12.5%), CAL Bank Limited (11.11%) and Enterprise Group Limited (10.81%).

 

The rest are Standard Chartered Bank (GH) Ltd. (4.55%), Benso Oil Palm Plantation Limited (2.94%), Guinness Ghana Breweries Limited (1.94%), Agricultural Development Bank (1.37%), Fan Milk Limited (0.56%) and Unilever Ghana Limited (0.47%).

 

Meanwhile, Access Bank Ghana, HFC Bank (Ghana) Limited and Produce Buying Company Limited have recorded losses in the same period.

Access Bank and HFC Bank have lost 6.17% and 6.47% of their share prices respectively. Likewise, Produce Buying Company Limited has shed 16.67% of its value.

Ghana Stock Exchange YTD return crosses 50%

GSE 2018

The Ghana Stock Exchange YTD return crossed 50% at the close of today’s trading on 20th November, 2017. This figure represents the highest year-to-date return recorded in the year so far.

At the end of the trading session today, the GSE Composite Index increased by 26.25 points to close at 2,547.12, which represents a year-to-date return of 50.8%. Similarly, the GSE Financial Stocks Index was up by 35.4 points to close at 2,248.21, representing a year-to-date return of 45.48%.

Share price increase was led by Agricultural Development Bank (ADB) with 48 pesewas gain to close the day at GH¢5.28 per share. Access Bank Ghana (ACCESS) followed with 43 pesewas gain to close at GH¢4.00 per share. Furthermore, GCB Bank Ltd. marginally gained 2 pesewas to close at GH¢4.29 per share. There were no losses for the day’s trading.

In terms of YTD returns of individual stocks, Benso Oil Palm Plantation Limited (BOPP) currently lead with 190.87% followed by Ghana Oil Company Limited (GOIL) and Standard Chartered Bank Ltd. (SCB), with 136.36% and 108.85% respectively. HFC Bank (Ghana) Limited and Total Petroleum Ghana Limited follow with 85.33% and 75% respectively. Others include Fan Milk Limited (72.14%), Ecobank Transnational Incorporated (70.00%), Enterprise Group Limited (64.58%), Standard Chartered Bank Ltd. Preference shares (60.00%), Unilever Ghana Limited (48.77%), CAL Bank Limited (39.47%), Agricultural Development Bank (37.86%) and Trust Bank (Gambia) Limited (34.62%). The rest with gains are Sam Woode Limited (25.00%), Societe Generale Ghana Limited (19.35%), GCB Bank Limited (19.17%), Guinness Ghana Breweries Limited (17.79%), Ecobank Ghana Limited (16.15%) and Aluworks Limited (14.29%).

In contrast, stocks which have recorded negative returns in 2017 so far include Mechanical Lloyd Company Limited (-53.33%), Tullow Oil Plc (-35.71%), and Starwin Products Limited (-33.33%). Other stocks with losses so far are SIC Insurance Company Limited (-16.67%), Ayrton Drugs Manufacturing Co. Ltd. (16.67%), PZ Cussons Ghana Limited (-9.09%), Camelot Ghana Limited (-8.33%), AngloGold Ashanti Depository shares (7.69%), Golden Star Resources Limited (-2.56%) and Access Bank Ghana (-2.44%).

Finally, a number of stocks are yet to record any price change for the year so far. These include 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 and Transol Solutions Ghana Limited.

Investments on the GSE: Has the foreign investor benefited?

GSE 2018

Investors all over the world look out for avenues to put their funds in order to get some returns and the Ghana Stock Exchange is one of the possible options.  In the article “The performance of the GSE vs T-Bills”,published on citifmonline.com on 31st January, 2017, it was revealed that in the long term, the GSE returned marginally better than Treasury bills.

Looking at the GSE from the perspective of a foreign investor takes a different twist. I was in a discussion with an investor who informed me he had invested about USD5 Million on the Ghana Stock Exchange in the last eight years but has lost more than 50% of his investment even though the stock market is returning about 40% Year-To-Date this year (2017). I decided to take a closer look at the figures within that period.

GSE foreign investor _ interbank exchange rate

GSE foreign investor _ inflation year on year

The graphs above depict the performance of the various factors that have impacted the funds placed in the investment over the period. The Ghana Cedi has depreciated more than 70% within the period under consideration while the GSE has returned about 13% on average- More than 5% lower than that of 91 Day Treasury bill.

See also: Ghana Stock Exchange suffers losses after record high

GSE foreign investor _ GSE return

Putting the investor’s funds into perspective, as shown in the table above, the investor converted $5M to Ghana Cedis, which was GHC6M in 2008. He earned about 13% on the investment on the GSE to about GH¢16M. He then converted this amount to Dollars which as at the end of 2016 stood at about $3.8M. The result is that about 24% of his funds had depleted.

Even though the GSE may be returning positively to local investors, the foreign investor that converts Dollars to Cedis to invest in the local bourse may be making a mistake. The main issue here, after the analysis, is the stability of the cedi.

Managers of the Exchange and all stakeholders must work together to ensure measures are put in place to ensure that the GSE is competitive.

One major action that must be taken seriously is getting a policy in place that will compel multinationals to list. Owners of these multinationals who are mostly foreigners receive their dividends in foreign currencies especially the USD which are shipped out of Ghana’s economy. This puts pressure on the local currency thus contributes to depreciation.

Others include taking a second look at the cap on price changes on the Ghana Stock Market. Market Forces should be allowed fully to determine price changes.

In bigger markets, the stock exchanges communicate the health of their economies, but ours do not tell the full picture as companies are not fully represented.

The GSE needs rebranding, repackaging and fresh ideas to ensure acceptable returns to all investors.

 

Credit: Kofi Busia Kyei (Financial analyst)

Source: citibusinessnews



GSE begin second half of the year with impressive performance

registrars of ghana stock exchange

Just one month into the second half of the year, the year-to-date (YTD) return of the Ghana Stock Exchange has tremendously increased from its half-year figure of 16.31% to 31.99% as of 24th July 2017. To this effect, the percentage gained so far in the month of July alone is fairly equal to the overall percentage achieved by the bourse in the first half of the year. The graph below depicts the monthly trend of GSE YTD return for the year so far.

GSE return 2017
Monthly trend of GSE YTD return

Increased market activity played a major factor for the remarkable performance in July. In particular, the sustained interest of investors in stocks such as Standard Chartered Bank contributed to the successive gains on the exchange. In the month of July alone (between 1st and 24th July), Standard Chartered Bank has gained an additional return of 55.43 %. This exceeds the return of 39.98% it recorded in the first six months of the year. Besides Standard Chartered Bank, other stocks that have made good returns in the 3-week period (between 1st and 24th July) are HFC Bank, Fan Milk Limited, Ghana Oil Company Ltd. (Goil) and Benso Oil Plantation Ltd. (BOPP). Between 1st and 24th July 2017, HFC Bank, Fan Milk Limited, Goil, and BOPP have recorded positive returns of 32.73%, 25.21%, 15.79% and 14.06% respectively.

 

Despite the continuous impressive performance of the exchange, a number of stocks such as Agricultural Development Bank, Golden Web Limited, Cocoa Processing Company Ltd., Mechanical Lloyd Company Limited and Clydestone (Ghana) Ltd. have still not recorded any positive return in the year so far.