Databank: Gloomy outlook drag Ghana equities

The Ghanaian equities market has been facing challenges due to a gloomy economic outlook, with the Ghana Stock Exchange index declining by 26.5% year-on-year in the third quarter of this year, according to Data Bank. Alex Boahen, Head of Research at Data Bank, discussed the situation in a recent interview on CNBC Africa. Boahen highlighted the past year's performance of the equity market, noting that in 2017, Ghana exhibited one of the best performances in Africa with a 53% return. However, this momentum started to decline in 2018, leading to a correction phase. As of now, the market has seen a negative return of approximately 16%. Despite the challenges, Boahen emphasized that valuations in the market have become attractive, with companies showing signs of recovery in earnings. The banking sector cleanup is nearing completion, leading to improved profitability for banks. Boahen expressed cautious optimism regarding the equities market due to lingering macroeconomic uncertainties. The depreciation of the currency by 10% year-to-date and government revenue suspensions have cast a shadow over the market's potential for growth. Boahen pointed out that while Ghana's GDP is projected to grow by 6.5% this year and the currency is expected to stabilize around 541 against the US dollar, challenges persist. He identified the currency as a major concern, driven by foreign investors' influence on the bond market. Foreign investors pulling out of the market can significantly impact the Ghanaian cedi. Despite the country's decent economic performance and fiscal deficit within acceptable limits, the currency weakness remains a critical issue affecting the equities market. Boahen also discussed the impact of the banking sector cleanup on earnings, anticipating continued improvement as non-performing loans (NPLs) decrease. He highlighted the importance of banking sector performance in guiding the overall market direction. Looking ahead, Boahen suggested that earnings growth, particularly in the banking sector, will be crucial for the market's trajectory, considering the persistent challenges posed by the currency. The outlook for the equities market in Ghana hinges on overcoming macroeconomic uncertainties and maintaining stability in the face of currency fluctuations and revenue issues. The recovery in company earnings, especially in the banking sector, will play a significant role in shaping the market's future prospects, as investors closely monitor developments in the Ghanaian economy.