The Ghana Stock Exchange (GSE) has shown a remarkable improvement in its performance from the beginning of 2023 to end of August, ranking as the third-best performing stock market on the continent.

This achievement places it just behind Nigeria and Egypt, and represents a significant shift from the situation at close of 2022 when the local market was worst-performer in the region. During that time, portfolio reversals – especially from foreign investors, and rapid depreciation of the cedi had a detrimental impact.

The Composite Index (GSE-CI) experienced a substantial rally, reaching 3,084.79 points during this period – marking a remarkable appreciation of 26.22 percent. The market capitalisation surpassed GH¢73billion.

This rally can be attributed to a renewed interest in the equities market, driven by developments in the debt segment. A clear indication of this renewed interest is the fact that pension funds accounted for 17 percent of equity market trades between January and August 2023, in stark contrast to the 4 percent recorded for the same period of 2022.

The GSE remains on course to beat market expectations, but analysts say much more must be done to sustain growth in the face of cyclical hills and valleys.

This comes as the stock market witnessed a roller-coaster ride in recent years, marked by sharp highs and steep declines. Analysts are closely monitoring the market’s performance as it navigates through challenging economic conditions, foreign investor sentiment and policy changes.

2021: recovery and gains

In 2021, Ghanaian equities rebounded – closely mirroring the country’s economic recovery after facing pandemic-induced losses in 2020. The GSE-CI recorded an impressive annual return of +43.66 percent in local currency terms, second only to Zambia’s Lusaka Stock Exchange in Africa. This surge was attributed to increased consumer demand, a stable exchange rate and robust corporate earnings across various sectors. However, the financial sector – including banking and insurance counters – lagged behind, with the GSE Financial Stock Index (GSE-FSI) returning +20.70 percent for the year.

2022: a challenging year

Again, the equity market faced adversity in 2022 – emerging as the worst-performing stock market in the sub-region. Macroeconomic uncertainties, including currency pressures, high inflation, interest rate hikes and sovereign credit downgrades, fuelled a widespread sell-off. Foreign investors led the selling pressure, creating a predominantly buyers’ market. This trend resulted in lower share prices, offering buying opportunities. Despite the turbulence, market turnover increased significantly to GH¢1.64billion – driven by assets like the New Gold ETF, which attracted investors seeking refuge from inflation.

1HY-23: signs of recovery

The market showed signs of recovery in first-half 2023. Investors began turning back to equities due to concerns over the Domestic Debt Exchange Programme’s (DDEP) impact on the fixed-income market. The GSE-CI achieved impressive gains of 14.90 percent, outperforming the GSE-FSI which fell by 17.57 percent. Key factors contributing to this recovery included easing price pressures, a stable currency and optimism about economic recovery following the successful negotiation of a US$3billion extended credit facility with the IMF.

Outlook for 2023: non-financial stocks in focus

Experts are closely watching the domestic stock market in second-half 2023. Non-financial stocks are expected to continue leading the way, driven by strong demand. However, some profit-taking may occur as investors seek to secure their gains. Analysts have adjusted their year-end forecast for the GSE-CI to 15 percent (±300 basis points).

The announcement of a second wave of DDEP has raised concerns about its impact on financial stocks. As a result, income investors are likely to favour reliable, high dividend-paying and defensive stocks such as Benso Oil, MTN and TotalEnergies, which offer steady earnings and returns even during economic downturns.