Ghana’s capital markets have been bolstered by the recovery in the country’s economy. The stock market has seen a surge in activity, with market participants feeling bullish about the near future. As optimism sweeps across the sector, Ekow Afedzie, Deputy MD of the Ghana Stock Exchange, discusses plans to expand the market.
How did the Ghana Stock Exchange (GSE) perform in 2017 and what were the significant listings or delistings?
The stock market performed extremely well last year in terms of secondary market activity. If you look at the GSE composite index as of the end of 2017, it had jumped up by 48%, which makes it one of the best-performing markets in Africa by all kinds of measurements. In comparison, the Nigerian stock market index grew by around 30% during the same period.
The main driver for this performance is an improvement in the macroeconomic environment, with inflation and interest rates coming down, and the currency stabilising to some extent. Also, if you follow the government’s monetary policy, then we are looking at a positive picture for the Ghanaian economy in 2018. So generally, investor perception about the market looks very good.
In terms of primary market activity, we did not have any major listings in 2017; however, we did have a few smaller listings on the market. Nevertheless, we are expecting a major listing from a telecoms company in the first half of the year, but I cannot divulge the name at the moment. Moving away from the equity side, the bond market performed tremendously well and we have seen values trading on the market more than double year-on-year from C12.7bn [$2.84bn] to C23.7bn.
The bond market grew substantially mainly because of government debts. There were also a few corporate bonds on the market, however, they were not trading at the level of government bonds, so we are looking to improve things in that area. But overall, the market has done well due to the economic performance and the positive forecasts for 2018.
There was some criticism that the Exchange did not do enough to help predict the collapse of UT Bank, which was a listed company. How do you respond and what lessons have been learnt to avoid future shocks?
Criticism is always welcome for an institution such as ours. The key thing is that we do have continuing listing obligations which companies must meet, and those obligations will be enforced rigorously.
Going forward, we’ll ensure that all the disclosure requirements are met and breaches will have sanctions because we need to try and create confidence in the market by making sure that all participants abide by the rules. UT Bank was a unique case and you need to discuss it in the context of the issues affecting the banking sector, such as non-performing loans and how the Central Bank decided to deal with the issue.
The financial services sector accounts for 48.9% of all trading value on the exchange. What can be done to encourage greater diversification?
As you say, the financial service firms – especially banks and insurance companies – dominate the GSE. One of the key goals of the exchange in 2018 is to increase the diversity of the types of companies on all three exchanges: GSE; Ghana Alternative Market, which is the parallel market catering for small and medium enterprises; and the bond exchange.
I expect financial services will continue to dominate for some time to come, especially if you look at what is happening in the banking sector, where they have been asked to increase their capitalisation. We are likely to see a few more of them going out there to raise capital, with some doing so by way of a public offer.
Considering the other sectors, such as manufacturing and energy, the large companies on the exchange are mainly multinationals where the board may not be in Ghana. The telecoms sector is also dominated by the multinationals and foreign entities such as MTN, Vodafone and Airtel, and we are expecting one other firm will join the exchange in 2018.
When you take mining, it’s the same story – companies like AngloGold and Newmont are all multinational and foreign entities. We have been talking about how to get these multinationals’ Ghanaian subsidiaries onto the market to create a more diverse exchange. We do have the oil firm Tullow listed on the market, but we understand that we need to get more firms from a variety of sectors involved.
The key agenda for 2018 is to get more listings on the market, and fortunately, the economic background is forecast to be positive, making it attractive for companies to list. The other change that has occurred is pension fund reforms and the development of the pension fund regime, which has created huge demand for long-term capital. While pension funds are already in the market, they are not as active as they should be.
We need to ensure that the stocks available are the type that can maximise the investment for pension funds. But what has been lacking is opportunities on the supply side, so that these funds have viable avenues for investment. Therefore, it’s a case of getting more products on the market as we move towards longer-term instruments such as equities and bonds. I am confident that this year we will see pension funds participating more on the market.
There have been discussions about introducing new instruments including derivatives like futures and options. When will you be in a position to implement these changes?
The regulator came out with the Securities Industry Act in 2016 which made provisions for securities such as derivatives. The key now to implementing the new instruments is to have the correct regulatory framework in order to have these products developed. We are yet to develop all the rules for all these instruments but we aim to introduce new features onto the market in the near future.
Also, in the bond exchange, we are likely to see new products such as repurchase agreements (repos), which the market community and the Central Bank will introduce onto the market. We are also looking at some new features that will improve liquidity on the market such as security lending and borrowing. We are in discussion with the regulator about delivering these features.
In the first quarter of 2018, we will look to implement margin trading and other marketmaking securities that I have mentioned previously. So, in the very near future, we will see all these new products on the market, and we hope that insurance funds and investment bankers will take advantage of these new instruments.
Exchange technology in more developed economies is getting faster and faster; what are your plans to upgrade GSE’s performance?
Technology is another driver of the market and apart from getting more listings and improving liquidity, we are also focusing on how to improve efficiencies in all the markets we have discussed. Technology is key.We have made some improvements on our trading system over the last few years, including software and hardware updates. We have the clearing and settlement system run by the Central Securities Depository (CSD).
The brokers have also acquired back office systems that allow their clients all over the world to key in their orders because we have the protocol that can link up to our markets. The next stage for us, which you will see in the first half of 2018, is to implement mobile trading. We are moving from the current technology and utilising the mobile technology to improve efficiencies and liquidity on the market so that many more people can access the market using mobile technology.