First off, stock markets are secondary markets where buyers and sellers of stocks of companies get to transact business and exchange ownership. That is, existing owners of shares can transact business with potential buyers through the stock exchange.
For the purpose of non-business inclined readers, who may have heard about stocks but do not know what it actually is and what it means, I will delve into basic explanations of what stocks are to establish some understanding. Stocks are basically a share in the ownership of a company. That is, they represent claims on the company’s assets and earnings. As a result, as you acquire more stocks, your ownership stake in the company becomes greater. Shareholders of stocks of companies are entitled to dividends (your share of profits in the company) and capital gains (That is the appreciation in the prices of stocks from the time it was purchased).
The point of this article is to sort to explain why investing in stocks haven’t seemed to be the ideal investment option to the ordinary Ghanaian. The Ghana Stock Exchange, which is the sole institution that sees to the issue of shares by companies (IPO’s) and sale of shares amongst individual investors is what academicians typically describe as “weak-form” in terms of efficiency. The weak-form EMH (Efficient Market Hypothesis) implies that the market do not adjust quickly to absorb new information. Hence prices of most stocks listed on the Ghana stock exchange are known to often remain the same even if extremely sensitive information’s which are expected to affect prices of companies are released.
Now, for the market to respond and adjust quickly to new information, one factor that will drive prices is the volume of trade. The Ghana Stock exchange has experienced the most minimal volume of trade across the sub-Saharan region and this goes back to ordinary investors not being interested in investing on the exchange. The exchange is known to have institutions form larger part of its traders.
Larger corporations such as the Social Security and National Insurance Trust (SSNIT), is known to own majority shares in most of the listed companies on the exchange. What happens is, because these shares acquired by such a big corporation as SSNIT, which in turn archives the stocks in their records, barely trading them, these stocks become dormant on the exchange. It is very common to find stock prices on the exchange to never change price all year round. This does not necessarily mean the companies that are listed aren’t performing, but demand and supply of the stocks drive prices as much as sensitive information’s do.
What has significantly accounted for the inactive of the exchange for the past years have been primarily due to lack of education. Not much has been done on education and training to intensify and increase investors knowledge on the role of the stock exchange. The corporations that have issued their shares on the exchange haven’t also done bit or played any part in educating the public on the means of acquiring ownerships in their stocks. I guess this is due to the fact that after their IPO’s, when they have been able to accumulate the funds necessary to carry on the reason for which they issued their shares for sale, they care less their stock price performances and whatever goes on in the secondary market.
Liquidity on the Ghana Stock exchange has also accounted for its unpopularity when it comes to investment option by the ordinary Ghanaian. A liquid market refers to the ability to buy and sell financial assets quickly and in large volumes without substantially affecting the asset’s price. The freedom to convert assets quickly without any hustle into cash or cash equivalent is what today’s investor is obsessed with. The Ghana stock exchange hasn’t proved to be efficient in terms of liquidity provision for investors. The minimum days it takes to clear a buy/sell on the market is 2days+1 which is not the case for other lucrative financial instruments. Technological advancement is what in my perspective, is the cause of delay in execution aside lack on investors readily available to take the opposite side of the transaction.
It is no surprise most investors in Ghana find it more comfortable in putting their money in savings account and treasury bills which generates lower returns comparatively, because they are able to cash out and redraw as and when needed. Because of investors lack of domestic investment appetite due to the factors mentioned earlier, they find it more comfortable engaging in normal wholesale and retail business with their capitals than to invest. It is even more surprising that Ghanaian investors find it way more comfortable investing chunk of their life savings in expatriate business and get-rich-quick schemes that have flooded the internet of 21 century generations.
The astonishing aspect of this is that, those companies only exist on the internet to the ordinary investor and they have no prove of their very existence or physical location. The recent of it is the emergence of crypto currencies. Interested investors who are eager to make quick returns on their investments are easily lured with narratives about how crypto’s are the next big thing- though in reality, it may actually be- and then go through a process which actually takes less than 3 minutes to allow them make deposits for their investment. Investing on the Ghana stock exchange on the other hand could take more than a day or two to complete. The required documents necessary for one to open a brokerage account alone becomes cumbersome for the ordinary investor who doesn’t want to go through any hustle to invest their extra cash.
The Ghana Stock Exchange should address means and ways of getting the ordinary Ghanaian attracted to the exchange by educating them on various lucrative investment alternatives on the market and reduce the bureaucratic systems that delays the process in purchasing stocks. Also, institutional investors who own majority shares of companies should be persuaded to sell off portions of their holdings to the interested individual investors for the stocks to exchange ownerships through demand and supply thereby influencing pricing in the interim.
The writer is a Financial Trader (GSE, CGIA-member, CFA-member)