July 13, 2020 - BY Admin

GHANA STOCK MARKET ON THE COLLAPSE?


GHANA STOCK EXCHANGE ON THE COLLAPSE? SINCE WEEKS, ESPECIALLY AFTER THE CORONA PANDEMIC APPEARED, WE HEARD THIS DOOMSAYING PROPHECIES IN THE MEDIA. BUT IS THAT REALLY TRUE?

TRUE IS FIRST OF ALL THAT THE INDECES OF THE GHANA STOCK EXCHANGE WENT SOUTHWARDS IN THE LAST WEEKS. MANY PEOPLE WILL NOW LOOK AT OTHER STOCK EXCHANGES, AND COMPARE THE LOCAL EXCHANGE WITH THEM. ADMITTEDLY, THE US-AMERICAN DOW JONES (DJI) AND ESPECIALLY THE NASDAQ WENT HIGHER AND HIGHER RECENTLY. BUT IS THAT REALLY BASED ON HEALTHY ASSUMPTIONS?

FIRST, IF WE LOOK AT THE PRICE/EARNINGS RATIO, US-AMERICAN STOCKS ARE OFTEN OVERVALUED. WE CALCULATE THE PRICE/EARNINGS RATIO BY DIVIDING THE ACTUAL SHARE PRICE BY THE EARNINGS PER SHARE (SEE FOR THAT https://www.investopedia.com ). THE EARNINGS PER SHARE REFLECTS THE PROFIT A COMPANY MAKES DIVIDED BY THE SHARES ISSUED. THE HIGHER THE PRICE/EARNINGS RATIO, THE MORE IT IS A SIGN THAT THE COMPANY IS OVERVALUED. THIS ACCOUNTS FOR MANY US-AMERICAN STOCKS.

SECONDLY,  ONLY A SMALLER NUMBER OF STOCKS IS RESPOINSIBLE FOR THE CURRENT RISE OF THE US-AMERICAN FINANCIAL  MARKETS. THESE ARE MOSTLY TECH STOCKS, AND HERE THE SO-CALLED "FAANG" STOCKS. THESE ARE FACEBOOK, APPLE AMAZON, NETFLIX, AND GOOGLE. THEIR CAPITALISATION EXCEEDS MOST OF THE OTHER LISTED COMPANIES. WE HAVE TO DEFINE CAPITALISATION IS AS THE NUMBER OF ISSUED SHARES MULTIPLIED BY THE SHARE PRICE. THE AFOREMENTIONED COMPANIES DOMINATE THE FINANCIAL MARKETS, AND DRIVE THEM UPWARDS.

IT IS QUITE DIFFERENT ON THE FINANCIAL MARKETS IN GHANA. FIRST OF ALL, THE PRICE/EARNINGS RATIO OF LISTED COMPANIES IS IN NO WAYS AS HIGH AS IN THE USA. ADMITTEDLY, THE SHARE PRICE OF MANY LISTED COMPANIES IN GHANA DID NOT MOVE SINCE THEIR LISTING. BUT THAT HAS REASONS I DISCUSSED BEFORE IN MY POSTS.

SECONDLY, I ADMIT THAT THERE ARE COMPANIES WITH A COMPARATIVELY HIGH MARKET CAPITALISATION. BUT THE FACT THAT THEY MIGHT DOMINATE THE FINANCIAL MARKETS IS CAUSED BY THE NARROW FINANCIAL MARKETS IN GHANA. FURTHERMORE, THE CORONA VIRUS MORE INFLUENCES THE CURRENT SITUATION THE FINANCIAL MARKETS IN GHANA. EXPLICITLY, WE SEE THAT IN THE SHARES OF MTN GHANA. THESE SHARES ARE NOW AT 57 GHC. IN GHANA, THERE ARE NO STOCKS THAT BY THEMSELVES WILL RAISE OR PUSH DOWN A WHOLE STOCK MARKET.

I MUST OF COURSE CONSIDER THAT THERE IS THE POSSIBILITY THAT SOMEONE  COMES AND ACQUIRES A LARGE STAKE IN ONE OR MORE. BUT THIS GHANAIAN WARREN BUFFETT WOULD THEN RISK A LOT. THAT'S BECAUSE ON THE OTHER HAND, THE LISTED COMPANIES IN GHANA ARE ALSO NOT  PER SE UNDERVALUED. UNDERVALUED THE COMPANIES ARE ONLY BECAUSE OF THE CURRENT HEALTH AND ECONOMIC SITUATION. AND UNDERVALUED ARE PERHAPS ONLY SOME COMPANIES THAT SHOULD NOT BE LISTED ON THE GSE IN THE FIRST PLACE.

THEREFORE, THE CONSEQUENCE IS THAT THE FINANCIAL MARKETS IN GHANA SHOW A NORMAL REACTION TO THE ECONOMIC SITUATION. THIS IS UNLIKE THE SITUATION IN THE USA WHERE THE STOCK MARKETS DO NOT REFLECT THE ECONOMIC SITUATION.

INVESTORS IN GHANA SHOULD USE THE OPPORTUNITY SHOWN THEM. LOW STOCK PRICES SHOULD INVITE INVESTORS TO GO INTO THE STOCK MARKET IN GHANA. AFTER THE END OF THE CORONA PANDEMIC, THE ECONOMY WILL CERTAINLY RECOVER. THIS WILL GIVE INVESTORS THE OPPORTUNITY TO PROFIT FROM INVESTMENT AT THE RIGHT TIME.

AND THE RIGHT TIME IS NOW!