…as investors switch to T-bills

Stock market activity is likely to remain subdued in the second half of 2012 as investors switch to higher-yielding Treasury bills and notes for gains, Ecobank Research has said in its latest market report.

The Bank of Ghana (BoG) has increased interest rates on T-bills in a move to mop up excess liquidity in the economy and stem the cedi?s worst depreciation since 2008.

?Although we expect the stock market to end the year on a positive note, activity could remain subdued during the second half of 2012 as fund managers and retail investors continue to direct new investments into fixed-income securities which are offering high yields,? Ecobank Research said.

The interest rates on the 91-day, 182-day, 1-year and 2-year securities rose from 10.7%, 11.3%, 11.3% and 12.4% to 22.4%, 22.7%, 22% and 23% respectively in the first half of the year.

In the same period, the Ghana Stock Exchange (GSE) returned 7.9%, against analysts? expectations of 15% after a strong first-quarter performance, during which the GSE?s composite index had gone up by 8%.

Stocks in sectors including oil and gas (24% returns), banking (13.1% returns), and fast-moving consumer goods (17.2% returns) gained significantly, but trading and insurance stocks dipped by 4.2% and 20.9% respectively.

?We don?t see the market moving up very strongly in the second half. We?re looking at returns in the range of 10-15% by close of the year. Moving ahead, we might see inflation moving up further, and the higher interest rates go the more investors will switch to Treasuries,? Yaw Adu-Koranteng, an analyst at Gold Coast Securities Limited in Accra, said in an interview.

He said foreign investors have been jittery over the slide in the local currency, compelling them to hold back new injections into their investments. Meanwhile, redemptions by local investors have increased as they switch to money-market instruments.

?Foreign clients are playing a wait-and-see attitude because of what is happening to the cedi, which has lost about 20% against the dollar in the first six months alone.?

Apart from the falling cedi, global investors? risk-aversion to emerging markets has heightened due to the crisis in the euro zone, triggering a slowdown in foreign portfolio investments, according to the report by Ecobank Research.

The report said yields on T-bills and notes are likely to rise further during the second half of 2012 due to the need to tighten monetary policy in a bid to curb inflationary pressures, and due to government borrowing to finance the 2012 budget.

Inflation jumped to 9.3% in May from 9.1% in April, and the Bank of Ghana hiked its policy lending rate by 50 basis points to 15% in June.

Governor Kwesi Amissah-Arthur said as he announced the rate-increase that the Central Bank had mobilised around GH?1.2 billion since April in its efforts to curb money growth.

By Leslie Dwight MENSAH

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