Market values of investments recover as confidence grows
Investment portfolios in Ghana have reached their highest level since November 2022 following the adoption of the mark-to-market valuation approach by the Securities and Exchange Commission (SEC). The market’s confidence has improved due to the successful settlement of the Domestic Debt Exchange Programme (DDEP), a government initiative aimed at reducing the country’s debt burden.
According to market sources, prices have improved significantly, leading to portfolio increases for investors. The prices are expected to rise further in the coming days, with new deposits being allocated to a new portfolio purchased at the current market value. This has come as a relief to investors who had initially lost funds due to the new directive on portfolio valuation, with some reporting that their funds have almost returned to their original amount.
The adoption of the mark-to-market valuation approach by the SEC seeks to protect all classes of investors and the market’s integrity by ensuring a fair and transparent playing field. The SEC has directed stakeholders, including fund managers, custodians, and trustees, to obtain prices available from the Ghana Fixed Income Market (GFIM) for all listed fixed-income securities to enable the pricing of securities to reflect market values.
The GFIM is expected to make available end-of-day prices for all fixed-income securities during this year, while in the interim, fund managers, custodians, and trustees are directed to use average prices published by GFIM to mark-to-market their fixed-income securities. Unlisted securities are also expected to be valued periodically, taking into account market movements, contractual cash flows, and recoverability of the underlying assets.
Last year, while adopting the new valuation method, the SEC indicated that the move seeks to protect investors and the market’s integrity by ensuring a fair and transparent playing field. At the time, fund managers were witnessing a sharp increase in redemption requests, fuelled by the prevailing high-interest rate regime and a desire to seek safety in alternate asset classes such as currency and precious metals. This elevated the need for fund managers to sell securities at a loss, which would otherwise have been held to maturity.
“The SEC has taken note of the current high-interest rate environment in Ghana with its adverse effects on liquidity in the secondary market for bonds and high clients’ redemption requests – necessitating the sale of investment securities ordinarily designated as held to maturity,” the Commission’s directive read in part.
In such a situation – wherein interest rates have gone up and bond prices have fallen, without the mark-to-market approach and investors opting to exit for whatever reason – investors should be made to realize the investment’s value at that moment as it does not reflect current market conditions.
This explains why investors were cautioned about the risk of losing a portion of their holdings due to current market conditions – a phenomenon that is accurately captured through the mark-to-market model, which does not amount to a ‘haircut’ with investors better-off holding closer to maturity.
The adoption of the mark-to-market valuation approach by the SEC is a significant step towards protecting investors and the market’s integrity. The move has brought much-needed transparency to the valuation of investment portfolios in Ghana, leading to improved investor confidence and portfolio returns. As the market continues to recover, investors can expect to see further increases in their portfolios, with the new valuation approach ensuring that their investments are accurately reflected at current market values.
