How High Will Markets Go

Buoyed by a rally in MTNGH, the Ghanaian equity market advanced to a 31.93% year-to-date return at the end of April 2021. The surge in prices of eleven other stocks in the banking, petroleum marketing, insurance and beverage sectors has sparked interest in the equities market and led to questions of how high the benchmark index can go this year. We believe equities are still underpriced amid steep discounts to book value and attractive dividend yields.

While we maintain our pro equity stance, we are overweight fixed income securities with a short to medium duration as high debt and revenue underperformance threaten the long term outlook. We expect the monetary policy committee of Bank of Ghana to maintain rates at the next meeting as the economy continues to recover from Covid. We also expect fx to remain at current levels in May following the recent Eurobond sale and weaker dollar.

Our asset allocation strategy is based on a positive outlook on risk assets, which is supported by an improving economic recovery and accommodative policy. With COVID-19 vaccinations expected to be well underway by third quarter, we expect economic activity to continue to normalize throughout the year. We keep equity and credit as the most preferred asset classes, being that equity provides good upside in the economic recovery and short and medium term credit should hold steady in the next quarter. We prefer allocations in large cap financial stocks because financials outperform in periods of expansion.

Risks to the current outlook while in check includes an outbreak of Covid-19 which brings with it a lot of restrictions and dampening growth. Also, a decision by the monetary policy committee to increase rates next two weeks will likely lead to tightening of the economy and restrict growth and access to credit which is already a problem.

Asset Allocation Strategy

We maintain a pro-risk stance on the market while being overweight short term and medium term fixed income securities. We continue to see the best opportunities in a diversified exposure of banks, petroleum marketing, beverage and agro stocks.


Equity markets look appealing relative to bonds led by key themes outlined below. Based on these themes, we are overweight CalBank, Ecobank Ghana, GCB Bank, Societe Generale Ghana, Guinness Ghana Breweries, Benso Oil Palm Plantation and GOIL Company.

1. Dividends

Equity markets look appealing relative to bonds. At double digit dividend yields, we believe investors are protected by a moat, strong enough to cover downswings in the GSE. For income seeking investors, buying at current levels sets you up for growth in the medium to long term as earnings continue to grow at impressive rates.

2. Trading Multiples

Out of twenty nine stocks monitored (companies on the main exchange with positive book values), eighteen stocks (62%) trade below book value. The price-to-book values of banks is within the range of 0.44x and 2.00x, with an average of 0.89x. This discount to book value presents an opportunity for investors to buy attractive stocks at huge discounts.

3. Financial Performance

With CAGRs in excess of 20% over 5 years in key income line items, using a base forecast, the upside potential in these stocks are impressive and the outlook positive. Initiatives have also been put in place to maintain long term growth and increase market share.

Fixed Income

Yields are rising due to lower confidence in the economy as a result of a high debt-burden and lower revenue. We recommend investors employ a short duration strategy to mitigate risks by investing in bonds with a shorter duration, as longer-dated bonds are more susceptible to rising rates.

Disclaimer: The data contained in this document is based on material we believe to be reliable; however, we do not represent that the data is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in the document constitute our judgment as of the date of the material and is subject to change without notice. The document does not constitute investment advice and SIC Brokerage is not acting in a fiduciary capacity with respect to you or any other party. Before entering into any transaction or making any investment decision the recipient is strongly advised to seek their own independent advice in relation to any investment, financial, legal, tax, accounting or regulatory issues discussed herein. Further you should take steps to ensure that you fully understand appropriateness of the action in the light of your own objectives and circumstances. You should also consider seeking advice from your own advisers in making this or any other assessment. Analyses and opinions contained herein may be based on assumptions that if altered can change the analyses or opinions expressed

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