Search for investment options: A focus on Ghana Stock Exchange Financial Stock Index
THE report of the purported restructuring of the government debt has opened an opportunity to discuss other options that may be available to investors, fund managers and other market stakeholders. Some market players have stated that Government of Ghana instruments remain the only available option to invest funds, while others are also of the view that market players are simply not researching enough. It is obviously risky that rates are currently hovering around 30 per cent and above in the fixed income market.
Though risky, fund managers, investors and others have pumped a lot of money into those areas. It is, therefore, important that we take a holistic look at every area allowed by the regulators to make profitable decisions.
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Investopedia defines wealth management “…as the practice of solving or enhancing … financial situation and achieving short-, medium- and long-term financial goals…while providing guidance across a wide spectrum of investments, including cash, fixed income, equities and alternative investments. They can create a portfolio of assets that meets the investor's risk tolerance while also offering the opportunity for growth”.
The argument may be that “Ghana’s situation is different”. Investment opportunities simply cannot be found.
In our numerous works, the Young Investors Network/NIMED Capital Ltd Research Team has often pointed out some of the safest investment opportunities in the country.
This writeup focuses on how the Financial Stock Index has performed since 2017.
Market Index: A market index is a hypothetical portfolio of investment holdings that represents a segment of the financial market. The calculation of the index value comes from the prices of the underlying holdings. Some indexes have values based on market-cap weighting, revenue-weighting, float-weighting and fundamental-weighting. Weighting is a method of adjusting the individual impact of items in an index. The performance of a market index provides a rapid overview of the stock market's health, directs financial institutions in the establishment of index funds and Exchange-Traded Funds (ETFs), and allows you to measure the performance of your investments.
GSE Composite Index (GSE-CI): The calculation of the GSE-CI is based on the volume weighted average closing price of all listed stocks. All ordinary shares listed on GSE are included in the GSE-CI at total market capitalisation, except for those of listed companies which have shares listed on other markets. The GSE-CI is a market capitalisation weighted index, i.e. each constituent is given weight according to its market capitalisation. The base date for the GSE-CI is December 31, 2010 and the base index value is 1000.
GSE Financial Stocks Index (GSE-FSI): This index has its constituents as listed stocks from the financial sector, including banking and insurance sector stocks. All ordinary shares of the financial stocks listed on GSE are included in the GSE-FSI at total market capitalisation, except for those of stocks which are listed on other markets. The base date of GSE-FSI is also December 31, 2010, and the base index value is 1000.
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The Financial Stocks include: Access Bank PLC (ABG), Agricultural Development Bank (ADB), CAL Bank PLC (CAL), Ecobank Ghana PLC (EGH), Enterprise Group PLC (EGL), Ecobank Transnational Inc. (ETI), GCB Bank PLC (GCB), Republic Bank Ghana PLC (RBGH), Standard Chartered Bank Ghana PLC (SCB), SIC Insurance Company (SIC), Société Générale Ghana PLC (SOGEGH) and Trust Bank Gambia Limited (TBL).
The information provided above shows that stocks featured in the GSE-FSI provide an option. Investors can apply the short-termism approach. Data have shown that leaving an investment in the GSE as a whole over a long term provides little returns compared to actively traded accounts.
With the right analysis, investors will be able to make projections that will enable them to benefit from these short-term gains as depicted by the table above.
In addition, spreading investments over numerous financial instruments, industries and other categories provides an avenue for diversification, which is an approach for lowering risk. Investing in various sectors that respond to the same occurrence differently seeks to limit losses. Diversification is the most crucial element of achieving long-term financial goals while lowering risk even though it does not guarantee against loss.
A careful look at the stocks featured by the GSE-FSI, therefore, provides an option.