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.

 

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 close 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.

 

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 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 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.

GSE records 16.31% return in first half of the year

Transol

After failing to post positive results in the last two years, the Ghana Stock Exchange continue on its track of recovering from previous losses. This is reflected in its performance in the first half of the 2017 year. At the end of trading session yesterday (30th June 2017), the GSE Composite Index inched up by 12.77 points to close at 1,964.55, representing a year-to-date gain of 16.31%. Likewise, the GSE Financial Stocks Index edged up by 11.5 points to close at 1,824.88, representing a year-to-date gain of 18.08%. Yesterday’s gains were made possible by six gainers and no losers. At the end of the trading session, Standard Chartered Bank Limited (SCB) led the gainers with 11 pesewas to close at GH¢17.04 per share. This was followed by Benso Oil Palm Plantation Limited (BOPP) and Ghana Oil Company Limited (GOIL), which gained 8 pesewas and 5 pesewas each to close at GH¢4.40 and GH¢1.87 per share respectively. Fan Milk Limited (FML) also gained 4 pesewas to close at GH¢11.82 per share while Enterprise Group Limited (EGL) and Ecobank Transnational Incorporated (ETI) both gained a pesewa each to close at GH¢2.39 and GH¢0.13 per share respectively.

 

In relation to the year-to-date performance of individual stocks, UTB bank lead with 133.33%, followed by BOPP (111.54%) and GOIL (70%) respectively. These are then followed by GCB (46.07%), SCB (39.98%), ETI (30%) and SOGEGH (20.97%). Others include CAL bank (16%), ALW (14.29%), SCB PREF (13.33%), TOTAL (12.12%), FML (6.1%), EGH (6.06%) and UNIL (5.76%).

 

Despite the overall positive results of the exchange, a few listed stocks posted negative returns in the half year. Notable of these stocks are Mechanical Lloyd Company Limited (-33.33%), HFC Bank (-26.67%) and Tullow Oil Plc (-22.10%). Other stocks with losses so far include Starwin Products Limited (-33.3%), Produce Buying Company Limited (33.3%), Ayrton Drugs Manufacturing Co. Ltd. (16.67%), PZ Cussons Ghana Limited (-9.09%), Guinness Ghana Breweries Limited (8.59%) SIC Insurance Company Limited (-8.33%), AngloGold Ashanti Depository shares (-7.69%) and Access Bank Ghana (-7.32%).

In the same period, a few stocks such as Agricultural Development Bank, Golden Web Limited, Cocoa Processing Company Ltd. and Clydestone (Ghana) Ltd. neither recorded a gain nor a loss.

Profits of SAS fortune fund drop in 2015

SAS fortune fund

The bearish economic outlook for 2015 had significant impact on performances of various sectors of the economy for the year.

Figures released by the managers of the fund showed that the fund decreased by GH¢ 0.0036 to close the year at GH¢ 0.5064.

The fund also made a total return of negative 0.71 percent as compared to the GSE Composite Index of negative 11.77 percent.

Despite these performances, managers of the fund maintain that the Strategic African Securities Fortune Fund has been able to maintain a lead role over its benchmark Ghana Stock Exchange Composite Index.

Speaking at the fund’s 11th Annual General Meeting Chairman of the SAS fortune fund Board, Maxwell Logan stated,

“The total net asset value of the SAS fortune fund at the end of 2015 stood at GH¢ 2,971,909 and representing about 5% decrease over the previous year’s total net asset of GH¢3, 129, 788.”

According to Maxwell Logan, the fund was also Continue reading “Profits of SAS fortune fund drop in 2015”

Ghanaians advised to buy stocks now

stocks

Investment bankers are urging Ghanaians to take advantage of the lower share prices on the Ghana Stock Exchange (GSE) to buy stocks of listed companies for future gains. With only a handful of listed companies doing well on the bourse this year, stock prices have been plummeting since the beginning of the year with many investors shying away from the equities market.

The GSE Composite Index (GSE-CI) stood at 1,787.50 points as at June 30, down from 2,352.23 points at the same time in 2015 with total market capitalisation dropping from Ȼ64.62 billion to Ȼ54.79 billion over the 12-month period. As at close of trading on Friday, the Composite Index from January has declined by 10.41percent while the GSE- Financial Index, which tracks the performance of only financial stocks, has also dropped by 13.28 percent with the market capitalisation dropping slightly again to Ȼ54.72 billion.

Chief Executive Officer of Databank, Kojo Addae-Mensah, strongly urged Ghanaians to seize this moment to buy stocks and reap the benefits later. “I will strongly advise that this is the time to go and purchase stocks and you will be smiling in five years’ time,” he told. Conceding that equity market has been poor this year and “worse than expected”, he is hoping that it doesn’t get any worse and the year will end at a small negative and after the elections investors will come back. Bemoaning the “short-term thinking of Ghanaians”, Mr. Addae-Mensah hopes that Ghanaians will see the basic investment principle of buying stocks at low prices and selling them at high prices.

Seth Aryitey, Executive Director of CDH Asset Management Limited also reiterated the call on investors and the Ghanaian populace to seize the opportunity to buy stocks. “We know the economy is down but this is the time to see opportunities and take advantage. If you look at the stock market, the share prices are rock bottom but there are hidden intrinsic values in there. So this is the time to start picking up stocks,” he said.

Mr. Aryitey noted that most people do not know enough about the stock market and so do not research properly to understand the fundamentals before buying shares. “Most people do not understand the stock market. The higher the risk, the greater the gain and if you understand that properly you will realise that when prices are down, that is the time to buy,” he added. Speaking on how to get people to invest and buy more shares, Mr. Aryitey said there is the need for stock market education and to give adequate information where necessary.

Managing Director of Ecobank Investments, Kesseih Antonio, told the B&FT in an interview that stocks have not been great for the past two years and that is because of the challenges the economy has seen including a power crisis that almost crippled the manufacturing sector.

 

Source: Myjoyonline