Investors flee stock market…take cover in gold, Yen and US dollar

Ghana Stock Exchange

The Ghana Stock Exchange saw a decline of trading activities in the first quarter of the year, mainly induced by the global impact of the coronavirus pandemic – pushing investors to flee to safer havens like gold, the Japanese Yen and US dollar, a Bank of Ghana report has revealed.

According to the First Quarter Bulletin Report, the Ghana Stock Exchange-Composite Index (GSE-CI) fell by 4.3 percent – indicating -97.54 points at the end of Q1-2020; albeit a marginal improvement compared to a decline of 4.6 per cent (-117.71 points) recorded in the same period of Q1-2019. The weak performance of the GSE-CI in the period was mainly the result of significant loss in value of stocks in the food & brewery, agriculture, distribution, finance and IT sectors. Manufacturing sector stocks also performed poorly, declining in value by 12.6 percent.

However, at the same time gold price went up in the first quarter of this year, providing investors with a refuge. The price hit US$1,560 in January 2020 compared to US$1,292 same time last year. It further increased to US$1,590 in March this year against US$1,300 in March 2019. In fact, investors’ high appetite for the commodity even reflected on the GSE as GLD, a gold-related stock, was the best performer and led the list of advancers with a share price appreciation of 50.3 percent on the local bourse.

The flight to safety in gold also reflected in the earnings from the commodity to the economy.  Gold exports during the period amounted to US$1.47billion compared to US$1.43billion recorded during the corresponding quarter of 2019. The increase in receipts, according to the report, was mainly the result of a price-effect. While the volume of gold exports decreased by 15.3 percent, the average realised price increased by 21.1 percent.

Gold, however, wasn’t the only safe haven for investors who abandoned stocks. The U.S Treasury became another escape-window for them. As the coronavirus outbreak ravaged economies in Q1-2020, says the report, the US dollar and Japanese yen emerged strong against major rivals on the international market, largely boosted by safe-haven gains as concerned investors dropped riskier assets and currencies.

Investors who panicked in the wake of the coronavirus outbreak, sought safety in the dollar. The currency ended the quarter with a gain of 6.5 percent and 2.2 percent against the pound Sterling and the euro respectively.

Again, the Japanese yen emerged strong during the first quarter of 2020, as the currency benefitted from safe haven purchases. In an effort to repair the Japanese economy in the wake of the coronavirus pandemic, the Bank of Japan also pledged to buy more corporate bonds and commercial debt as well as establish a new corporate lending scheme to further boost investor confidence in the currency. Consequently, the currency appreciated by 7.1 percent, 2.9 percent and 0.6 percent against the pound Sterling, the euro, and the US dollar respectively.

The data however show that the pound Sterling traded weak during the period under review, as risk sentiments persisted while the crisis evolved. Low market liquidity for the currency in favour of the US dollar further exacerbated the decline in demand for the pound Sterling. At the end of the quarter, the pound Sterling recorded a loss of 6.6 percent, 6.1 percent, and 4.0 percent against the Japanese yen, the US dollar, and the euro respectively.

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