To further develop the capital market, it is imperative that regulators initiate measures to ensure institutional money managers, on a daily basis, value their fixed income securities based on changes in interest rates.
This was the consensus of a panel of financial market experts speaking at the maiden Forecast Dinner hosted by the Chartered Financial Analysts (CFA) Society-Ghana, who argued that the move would offer transparency on the volatility of fixed income assets and result in a better allocation of funds among asset classes.
The move from a book-price valuation model to a market-price model, according to the Chief Investment Officer (CIO) at IC Group, Ike Boamah, would shatter myths around risk and returns around government bonds, and see the equities market grow similarly to the fixed income market.
“The problem with our system is that all of us are used to the certainty of returns because we like Treasuries; so even though the interest rate is going up and, in effect, your actual market value is going down, we keep comparing a mark-to-market asset; equities, to a mark-to-book asset; and so that’s even a bad start for those pushing for equities in the first place,” he stated.
Continuing, he said: “Regulators must begin to initiate the conversation on marking to market, bonds; in that way it introduces variation in returns. And that will push people to begin accepting the fact that there is a risk and a return, and people will begin to get used to equities”.
He added that the current setup gives mixed signals to investors, as the state – through its agencies – maintains that it wants increased activity on the equities market but promotes a valuation model that is counter-intuitive.
“When regulators say ‘go and buy equities’ and on the other hand is doing a mark-to-book on the largest asset class on the market, how do we convince the average investor to buy equities?” he quizzed.
With the market capitalisation of the equities market standing at GH¢64.5billion at the end of December 2021 and total outstanding government securities at GH¢152.7 billion as of the same period, President of the CFA Society Ghana who doubles as CIO at Axis Pension Trust, Nana Wiafe Boamah, said the move will see market participants such as pension funds have little reservation against investing in equities.
“It is time for institutional money managers to be, for want of a better expression, forced by the regulators to mark to market their fixed income books, so we can all see the volatility in the fixed income. This will be particularly good for institutional investors like pension funds and mutual funds and banks; otherwise, there is a perception that equities are risky and this drives the allocation of funds to bonds – forgetting that fixed income securities guarantee the fixed income but not a return,” he said.
On his part, Head of Bank and Broker Dealer Sales for West Africa at Standard Chartered Bank, Jojo Kakra Bannerman, maintained that the number of listed companies and floated shares remain “woefully inadequate”.
He re-emphasised calls for the listing of government-owned companies, which he said would aid reduce an already oversized public sector; lead to transparency and diversity; and result in assets that investors would gladly put their money in.
For the Head of Research and Insights at Black Star Brokerage, Naa Luisa Nelson, there is a need for increased activity in the manufacturing sector – which continues to be outpaced by services and contributed a paltry 1.21 percent and 2.97 percent to the volume and value traded respectively on the GSE in 2021.
