Investors of listed companies on the Ghana Stock Exchange (GSE) are to breathe a sigh of relief as the local bourse is expected to end this year on positive note in spite of the turbulent economic conditions presently prevailing in the country.
According to an Ecobank Research report copied to the Graphic Business, the stocks to watch in 2014 include CAL Bank (CAL), Ghana Commercial Bank (GCB), HFC Bank (HFC), Enterprise Group Limited (EGL), SIC Insurance (SIC), Ecobank Transnational Incorporated (ETI) and Ecobank Ghana Limited (EBG) as they are those likely to drive the performance of the GSE.
The report said the banking sector would continue to dominate market activity for the rest of the year and this prediction comes on the back of the huge profits that the banks recorded last year.
The report identified CAL, GCB, Standard Chartered Bank (SCB), HFC and UT Bank (UTB) as some of the banking stocks that would drive market activity during the year.
“In addition, we expect to see to further activity in the insurance sector following Q1 2014 earnings announcements”, the report added.
“We expect the ongoing profit booking which is exerting pressure on the market to stabilise, following the announcement of Q12014 earnings figures.
Subsequently, we expect the market to be lifted by half year earnings figures, which will be announced in Q3 2014”, it said.
GSE performance
Q1 The report pointed to the fact that investors sustained their confidence in the Ghanaian stock market during the first quarter of 2014 as a result of expectations that the valuation of the market would be boosted by impressive fiscal year (FY) 2013 earnings figures.
The year-to-date (YTD) return on the benchmark index (GSE-CI) hit a high of 13.7 per cent in February 2014 before slowing to close the quarter at 11.2 per cent on the back of profit booking by retail investors.
The report said, “the first quarter (Q1) of 2014 performance was in line with our expectations outlined in our FY2013 review titled, The Ghanaian Stock Market in 2013 – January 27, 2014”.
In the opinion of the report, the catalysts that will ignite investor confidence in the market include FY2013 dividend announcements and impressive Q1 2014 earnings figures especially in the banking and insurance sectors.
However, it is of the view that there is a growing concern among foreign investors on the macroeconomic environment in Ghana, especially the rapid depreciation of the local currency (GHS has depreciated 17.3 per cent year to date (YTD), and could adversely affect their participation in the Ghanaian equity market for the rest of the year.
Three key sectors driving market performance
According to the report, three sectors drove the performance of the Ghanaian equity market in Q1 2014 were the insurance, banking and pharmaceutical sectors.
The insurance sector went up by 28.6 per cent as a result of sustained investor confidence in Enterprise Group Limited (EGL), which went up by 27.1 per cent YTD due to impressive FY2013 earnings figures.
Investors also renewed their confidence in SIC Insurance Limited (SIC), which rose by 33.3 per cent YTD as the company returned to profitability in FY2013.
The report anticipated sustained interest in SIC as its profitability improves in 2014 as a result of a slowdown in an ongoing write-off of outstanding premiums.
It said investors also sustained their interest in the Ghanaian banking sector, which rose by 17.9 per cent YTD mainly due to increased confidence in the sector ahead of FY2013 earnings announcements.
The top gainers in the banking sector were Standard Chartered Bank (SCB), SOGEGH and Ecobank Ghana Limited (EBG), which rose by 33.7 per cent, 33.3 per cent and 27.5 per cent to close at GH¢19.97, GH¢1.00 and GH¢7.15, respectively.
“We have recently seen profit booking in the banking sector, which is likely to persist until Q1 figures are announced next month”, the report said.
However, the oil and gas sector fell by 13.4 per cent in Q1 2014 mainly due to a 13.5 per cent decline in Tullow to GH¢30.25 on the back of investor reactions to a significant drop in FY2013 earnings figures.
The trading sector also fell by 6.3 per cent as a result of profit booking in MLC, which fell by 7.9 per cent.
Produce Buying Company (PBC) also went down by 5.9 per cent due to lower earnings figures that was attributed to lower cocoa output in Ghana and reduced global cocoa prices.
The consumer goods sector also fell marginally by 0.2 per cent as some investors begin to book profits following a strong performance in 2013.
The report believes that investors will continue to steadily book profits in the consumer goods sector until 2014 earnings figures begin to justify the current high valuation in the sector.
Slowdown in trading activity
The report indicated that there was a slowdown in market activity compared with the corresponding period in 2013.
The aggregate volume and value of shares traded fell by 34.5 per cent y/y and 0.6 per cent y/y to 44.82 million shares and GH¢71.43 million, respectively.
The report is of the view that the drop in market activity was due to unfavourable macroeconomic developments that deterred foreign investors from fully participating in the equity market.
In addition, rising yields on government securities was attractive and strong to pull local investors and fund managers into fixed income securities.
Q2, the market activity, the report noted, could remain below the level of activity experienced in the corresponding period in 2013 largely due to unstable macroeconomic indices, and rising yields on government securities, which is likely to pull new investments into fixed income market.
Meanwhile, it noted that the banking sector remained the most active in Ghana during the first quarter of the year largely due to the fact that the most interesting stocks in the Ghanaian stock market are in the banking sector.
Banking accounted for 65.8 per cent and 73.1 per cent of the total volume and value of shares traded, respectively, during the period.
CAL Bank (CAL) was very active and traded 11.23 million shares valued at GH¢11.12 million while Ghana Commercial Bank (GCB) traded 4.49 million shares valued at GH¢20.32 million.
Sustained investor interest in HFC Bank also resulted in the exchange of 4.89 million HFC shares valued at GH¢5.37 million in Q1 2014.
The insurance sector also accounted for 9.4 per cent and 6.9 per cent of the total volume and value of shares traded, respectively, driven by sustained investor confidence in the sector.
A total of 3.84 million shares valued at GH¢4.43 million were traded in the insurance sector during the first quarter of 2014.
As a result, the report observed a slowdown in activity in the consumer goods sector as most investors are waiting for the 2014 quarterly earnings momentum to justify the current high valuation in the sector.
Consumer goods accounted for 3.1 per cent of total volume traded and 13.6 per cent of total value traded. GB