Pension funds share of equities market dips

The August 2021 report issued by the GSE to fund managers shows a marginal 2 percentage points dip in the participation of pensions as of June 2021, as it recorded 5 percent in August 2021.

Local Pension funds executed 5 percent of trades between January and August 2021 compared to 0.46 percent for the same period in 2020. Foreign investors contributed 68 percent of equity market trades between January and August 2021 compared to 84.68 percent in 2020.

According to the exchange, last year, pension funds holdings in equities were about 2.5 percent. However, the marginal increase of pension funds on the market has been a result of the profitability of companies listed on the bourse, while prices on the market have literally stayed the same. Currently, the prices of listed companies relative to their profits, as measured by their price-to-earnings ratio, are so low.

“More than half of our companies are trading at a P/E ratio of 5 and below, it is unbelievable. The pension funds are looking at the arena, it is so cheap, and it is like a giveaway. That is why we are seeing many more of them coming back into the equities market”, Deputy Managing Director of the Ghana Stock Exchange (GSE), Abena Amoah said in an interview with B&FT.

The Chief Investment Officer with Axis Pensions, Nana Boamah in an earlier interview with B&FT two months ago, suggested that to ensure an increased investment by pension funds on the local bourse, the National Pensions Regulatory Authority (NPRA) needs to set an investment minimum benchmark for fund managers that will compel them into equities.

Equities Performance

A glance at the main market’s cumulative performance from January to August 2021, in relation to the comparable period in 2020, shows that the volume of shares traded lessened by 2.23 percent from 378.65 million last year to 370.19 million in 2021. However, in value terms, there was an increase of 44.97 percent from GH¢272.55 million to GH¢341.22 million.

Accordingly, the year-on-year, market capitalization and the primary index, the GSE Composite Index (GSE-CI) are up 15.69 percent and 48.94 percent respectively, with market watchers anticipating further positive activities on the market.

The local equities market appears set to provide its highest return in half a decade with the Exchange’s Composite Index (GSE-CI) returning a favorable 41.66 percent year-to-date (YtD). This comes after significant lows in 2014 and 2015, with -11.77 and -15.33 percent respectively, caused, in no small part by the crushing power crisis of the period. Also, the toll of the financial sector clean-up saw 2018 close at -0.29 percent; 2019 saw -12.25 percent and 2020 was worse off at 13.98 percent.

The rebound has been sustained by investor confidence which has been boosted particularly by the performance and fundamentals of stocks such as MTN, CAL, TOTAL, GCB and ETI.