Ghana Stock Exchange: what do you know about it?
Ghana Stock Exchange (GSE)
Stock markets is another terms for stock exchanges. The stock market is a unique market in which investors may purchase and sell shares in publicly traded companies. In every economy, the stock market serves as a source of investment finance; firms may utilise the exchange to raise capital for growth or acquisition initiatives. Apart from that, the stock market may act as a signalling tool for managers on their investment objectives (Samuel, 1996).Fortunately or unfortunately, Ghana has only one stock exchange, located in Accra; "fortunately" because it allows stakeholders to direct all their energies exclusively toward the exchange's development, avoiding energy dispersion; "unfortunately" because individuals in the northern part of the country are typically excluded from participation in the exchange due to its location in southern Ghana, specifically Accra.
Ghana's stock market started with eleven listings and quickly expanded to thirteen (13) in 1991, nineteen (19) in 1995, and thirty-two (32) in 2007 (Ghana Stock Exchange, 2007). Currently, the GSE is comprised of 42 stocks representing several sectors of the economy, including banking, brewing, consumer goods, distribution and trading, food, manufacturing, mining, insurance, information and communication technology, agro-processing and pharmaceuticals, and higher education. Five SMEs have listed on the exchange via the Ghana Alternative Market, including Meridian-Marshalls Holding Co. Ltd (Ticker: MMH), Samba Foods Ltd (Ticker: SAMBA), and Mega African Capital Ltd. (Ticker: MAC).
The GSE commemorated its 25th anniversary last year with the theme Building robust markets for a growing economy (source: www.gse.com, accessed 12/2/2016). Indeed, the GSE has achieved great accomplishments over its two-and-a-half-decade existence. It has established three markets: an equity market, an alternative market, and a fixed income market in Ghana. Its market capitalization has increased from GHS 3.05 million in 1990 to GHS 62,183.49 million as of October 31, 2015 (source: www.gse.com, accessed 12/2/2016). Again, it has enabled the financing of about GHS 2.1 billion in capital since 1990. This is quite an accomplishment for an organisation that is not supported by government financing.
The following is a discussion of how the Ghana Stock Exchange got its start:
A Synopsis of the GSE's History
The initiative to build a Ghanaian stock market started in the late 1960s, when a government-commissioned research concluded that creating a stock exchange would help economic progress (V. Osei, 2005). This finally resulted in the adoption of possibly the world's first stock market legislation - the 1971 Stock Market Exchange Act (Act 384). This piece of law laid the groundwork for the Accra Stock Market Limited's (ASML) foundation in 1971. Unfortunately, the exchange was unable to take place owing to a number of factors, including an unfavourable macroeconomic climate, political instability, and a lack of government backing.The exchange's inability to gain traction may have contributed directly or indirectly to the government enacting the "Investment Policy Decree" in 1975, authorising over-the-counter (OTC) trading. Foreign enterprises operating in Ghana were required by the Investment Policy Decree to sell at least 40% of their stock capital to indigenous people. Two stock brokerage businesses, National Trust Holding Company Ltd (often referred to as NTHC) and Merban Stockbrokers Ltd (previously known as National Stockbrokers Ltd), supported OTC trading (V. Osei, 2005). Indeed, the NTHC was established in 1976 to fill the void left by the country's absence of a legal stock exchange, with the intention that its presence would ultimately result in the establishment of a capital market. The National Investment Bank (NIB) was the only local business trading on the OTC; the others were mostly subsidiaries of foreign corporations established in Ghana.
The OTC suffered from a variety of flaws. To begin, it was inaccessible to small and indigenous enterprises, creating a system in which the OTC benefited primarily international corporations. To make things worse, the private sector was unimpressed by the Investment Policy Decree's requirement that foreign enterprises relinquish at least 40% of their shares.
In the late 1980s, strong calls for the establishment of a stock market grew more strident. In 1989, the Ghana Stock Exchange Commission received a study on the viability of establishing a Ghanaian stock exchange (V. Osei, 2005). The Ghana Stock Exchange was incorporated as a private business in July 1989 under the Ghana Companies' Code of 1963. (Act 179). Trading did not begin until November 12, 1990.Half a decade later, the exchange's legal status was converted from private to public, with the purpose of providing the public with facilities and a framework for the purchase and selling of shares, as well as regulating authorised trading members of the Stock Exchange" (Mensah, Awunyo-vitor, & Sey, 2012).
It must be stated that the GSE is a private sector venture funded entirely by private capital. There are no stockholders on the exchange; instead, there are two types of members: (1) Licensed Dealing Members and (2) Associate Members. These two individuals have distinct roles on the exchange. While a Licensed Dealing Member is a business entity licenced by the exchange to transact in listed securities, an Associate Member is a person or business entity that meets the Exchange's membership standards but is not licenced to operate as a stockbroker on the exchange. The founding of the GSE has resulted in a rise in the number of brokerage businesses in the nation. As of 2012, around sixteen (16) regulated stock brokerage businesses existed (Mensah et al., 2012).
The GSE's operations
Stock prices on the GSE are determined by demand and supply dynamics, as is the case in free market economies. Prior to 1994, there was a restriction stating that the variance in share prices may not exceed 5% during any one trading session (K. Osei, 1998). Nonetheless, on May 23, 1994, this limitation was repealed to enable the forces of demand and supply to function freely. However, there was one condition in favour of the regulation — so long as there was a reason, the "5% rule" was subject to violation.How is trading done on the Ghana Stock Exchange?
Trading takes place on the exchange's floor using a call-over mechanism with a restricted auction. According to V. Osei (2005), the GSE trades in 100-share lots. This does not apply to the Ashanti Goldfields Company (AGC) shares, which may be traded in lots of ten. The exchange is open three days a week – Mondays, Wednesdays, and Fridays – beginning at 10:00 a.m. and lasting an average of two hours. Ordinary shares and bonds are among the securities traded on the exchange's floor.Anyone, as long as he is at least 18 years old and of sound mind, may acquire shares on the Exchange. Foreign residents of Ghana may purchase equities on the market. Non-resident Ghanaians and foreigners, on the other hand, may not purchase more than 10% of a given stock approved for listing on the market. Additionally, the aggregate ownership of all non-resident foreigners in a single listed asset or stock are limited to 74 percent. On the GSE, the government sets and controls broker commission rates (V. Osei, 2005). In June 1993, the exchange opened to non-resident Ghanaians and foreigners; this step considerably aided the market's expansion (Mensah et al., 2012).
The current mechanism of delivery and payment is centralised but not fully automated (i.e. Central Securities Depository). The settlement term is now T+3 business days. Additionally, it is a case of delivery against money (V. Osei, 2005).
The GSE's performance
Fourteen years after trading began on the Ghana Stock Exchange's floor, it was adjudged the world's best-performing market, recording a year return of 144 percent in USD terms, significantly above the Morgan Stanley Capital International Global Index's 30 percent return (Databank Group, 2004).The GSE All-Share Index is a performance indicator that is used to monitor the GSE's overall performance. It increased from 77 points on November 12, 1990, to around 900 points on December 31, 1999. (V. Osei, 2005). 1998 was a one-of-a-kind year for investors on the GSE. The Index set a number of milestones that year, most notably in the first six months; the Index achieved an all-time high of 1201.08 points. After everything was said and done, by the end of 1998, seven of the twenty-one listed firms had outperformed the GSE; a really extraordinary feat.
Fortunately for investors, this increasing momentum continued throughout the twenty-first century, even as the twentieth century came to an end. The GSE All Share Index hit a high of 903.17 in 2000, after a period of decline. In February 2001, the Index increased further to 1025.78 points, an increase of 11.42 percent, and to 1395.31 points in 2002, an increase of 45.96 percent (V. Osei, 2005). The GSE All Share Index increased by 2158.1 points to 3553.4 points in 2003, despite the global economy reeling from the 9/11 Terrorist attacks. V. Osei (2005) attributes the Index's success in part to prudent macroeconomic management and AngloGold's market debut and listing. K. Osei (1998) demonstrated how the listing of Ashanti Goldfields Company (which later merged with AngloGold to form AngloGold Ashanti) on the Ghana Stock Exchange and the London Stock Exchange significantly improved measures such as capitalization, turnover ratio, capitalization to GDP, and value traded to GDP, all of which indicate an increase in the Ghana Stock Exchange's liquidity.
As of February 9, 2016, the GSE All Share Index was trading at 1,920.63 points, up 0.74 points from the previous session's close of 1,919.89 points.
Some References
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