THE report on the alleged government debt restructuring has opened up the opportunity to discuss other options that may be available to investors, fund managers and other market participants. Some market participants have stated that Ghanaian government instruments remain the only option available to invest funds, while others are also of the view that market participants are simply not doing enough research. It is obviously risky that rates are currently hovering around 30% and more in the fixed income market.
Although risky, fund managers, investors and others have poured a lot of money into these areas. It is therefore important that we take a comprehensive look at all areas allowed by regulators to make profitable decisions.
Investopedia defines wealth management “…as the practice of resolving or improving…financial condition and achieving short, medium, and long-term financial goals…while providing advice on a wide range 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 providing an opportunity for growth” .
The argument may be that “Ghana’s situation is different”. Investment opportunities are simply not found.
In our extensive work, the Young Investors Network/NIMED Capital Ltd research team has often highlighted some of the safest investment opportunities in the country.
This write-up focuses on the performance of the financial stock index since 2017.
Market Index: A market index is a hypothetical portfolio of investment securities that represents a segment of the financial market. The calculation of the value of the index comes from the prices of the underlying securities. Some indices have values based on market cap weighting, earnings weighting, free float weighting and fundamental weighting. Weighting is a method of adjusting the individual impact of the constituents of an index. The performance of a stock index gives a quick overview of stock market health, guides financial institutions in setting up 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 the GSE are included in the GSE-CI at total market capitalization, except those of listed companies that have shares listed on other markets. The GSE-CI is a market capitalization-weighted index, i.e. each component is weighted according to its market capitalization. The base date of the GSE-CI is December 31, 2010 and the base index value is 1000.
GSE Financial Stocks Index (GSE-FSI): This index is made up of listed stocks from the financial sector, including stocks from the banking and insurance sectors. All common shares of financial stocks listed on the GSE are included in the GSE-FSI at total market capitalization, except those of stocks listed on other markets. The base date of the GSE-FSI is also 31 December 2010 and the value of the base index is 1000.
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), Societe Generale Ghana PLC (SOGEGH) and Trust Bank Gambia Limited (TBL).
The information provided above shows that the actions presented in the GSE-FSI offer an option. Investors can apply the short-term approach. Data has shown that leaving an investment in the GSE as a whole over the long term offers few returns compared to actively traded accounts.
With the right analysis, investors will be able to make projections that will allow them to benefit from these short-term gains, as shown in the chart above.
In addition, spreading investments across numerous financial instruments, industries and other categories provides an opportunity for diversification, which is one approach to reducing risk. Investing in various sectors that react differently to the same event aims to limit losses. Diversification is the most crucial element in achieving long-term financial goals while reducing risk, although it does not guarantee against losses.
A careful examination of the actions presented by the GSE-FSI therefore offers an option.