GSE: High interest rates on debt securities blamed for poor performance of Stock Exchange
The Ghana Stock Exchange (GSE) has been experiencing a period of poor performance, with negative returns on equities listed on the local bourse for the past four to five years. The executive director of the Young Investors Network (YIN), Kofi Kyei, has attributed this phenomenon, in part, to the high interest rates on government debt securities.
Speaking during NorvanReports’ Twitter Space Conversation on Sunday, February 26, 2023, themed “Ghana Stock Exchange – Whence Cometh the Revival”, Mr. Kyei noted that high rates on fixed income securities have led investors to shy away from the equities market, opting instead to invest in the debt market. This assertion has been corroborated by the high subscription rates for government T-bills, which were oversubscribed by GHS 2.1bn in the last issuance. The government was able to mobilize over GHS 5bn in funds against a target of GHS 2.8bn, indicating a high level of demand for fixed income securities.
The preference for fixed income securities can be attributed to a variety of factors, including their relatively lower risk and the high returns they are currently offering due to the high interest rates. This preference, in turn, has led to a reduction in demand for equities, resulting in negative returns for investors.
To revive investor interest in the equities market, Mr. Kyei has suggested a reduction in interest rates on fixed income securities. This proposal has merit, as lower interest rates on fixed income securities would make equities a more attractive investment option, potentially increasing demand for stocks.
However, it is worth noting that high interest rates on fixed income securities are not the only factor contributing to the poor performance of the GSE. Other factors, such as poor economic performance, political instability, and low investor confidence, may also be playing a role.
Addressing these issues will require a multifaceted approach that includes government policies aimed at improving the business environment, strengthening investor protection, and increasing investor confidence.
While high interest rates on fixed income securities may be contributing to the poor performance of the Ghana Stock Exchange, they are not the only factor. Addressing the broader issues that are impacting the equities market will require a concerted effort from policymakers, market regulators, and investors alike.
Nevertheless, reducing interest rates on fixed income securities could help improve investor sentiment and revive interest in the equities market, potentially leading to increased investment and improved performance over the long term.
