Cedi Performance and Macro-Economic Indicators
At the close of the third quarter of 2020, the year-to-date (YTD) depreciation rates of the cedi against the US dollar, the British pound and Euro were -3.09%, -1.01% and -6.88%, respectively. The performance of the cedi can be attributed to lower petroleum revenues and capital flight as uncertainties of the impact of the COVID-19 pandemic on the economy continue to linger.
At the end of the third quarter of 2020, the inflation rate stood at 10.4% compared to 11.2% during the second quarter of 2020. Despite the non-food group recording a higher inflation rate of 9.8% in September 2020 compared to 9.2% in June 2020, the decline in September’s inflation rate was driven by the food and non-alcoholic beverage group. The food and non-alcoholic beverage group recorded a decline in inflation rate from 13.8% in June 2020 to 11.2% in September 2020. This was due to a decrease in the prices of some food stuffs. Inflation overall is expected to be moderate but remain in the double-digit going forward, due to weakened aggregate demand weighing on price pressures.
The Bank of Ghana maintained the monetary policy rate at 14.50% as a result of the current extraordinary circumstances created by the COVID-19 pandemic, a widened budget deficit and a residual financing gap, which requires some monetary discipline to preserve the anchors of macroeconomic stability.
The table below provides details of the rates and movement in the currency market.
Economic Review
| Q2 2020 | Q3 2020 | Change (YoY) | |
| Monetary Policy Rate | 14.50% | 14.50% | 0.00% |
| Inflation Rate | 11.20% | 10.40% | 0.60%  |
| Open (30th June 2020) | Close (30th Sept 2020) | Quarter Depreciation | |
| US Dollar to Ghana Cedi | 5.67 | 5.70 | 0.62%  |
| British Pound to Ghana Cedi | 7.00 | 7.36 | 4.82% |
| Euro to Ghana Cedi | 6.36 | 6.68 | 4.75% |
Government Borrowing
The 91-, 182- and 364-Day Treasury Bills began the third quarter at 13.95%, 14.02% and 16.89%, respectively and increased to 14.04%, 14.14% and 16.98%, respectively at the end of the quarter. On average, interest rates for the 91-Day, 182-Day and 364-Day T-bills were 14.00%, 14.09% and 16.90%, respectively. The government also issued a 2-Year Note, a 3-Year, a 6-Year and 7-Year Bonds at 18.25%, 19.00%, 19.50% and 20.00%, respectively. The 6-Year and 7-Year bonds were the first of their kind to be issued this year. Compared to 2Q2019, interest rates of GoG securities at various maturities with the exception of the 3-Year and 5-Year bonds trended downwards.
The public debt issuance calendar for period covering September to November 2020 reveals government’s plans to issue cedi-denominated domestic debt securities amounting to GH₵22.73 billion from the domestic market. Of the targeted amount, GH₵19.68 billion will be used to rollover maturing domestic debts while the remaining GH₵3.05 billion would be fresh issuance geared towards government’s budgetary financing requirements. Short term securities (91-Day to 364-Day Treasury Bills) account for GH₵12.70 billion of the debt issuance, while longer term government debt securities (2-Year Treasury Notes to 20-Year Treasury Bonds) account for GH₵10.03 billion of the issuance. Government is expected to update the issuance calendar on a monthly rolling basis to reflect a full quarter’s financing programme.
| Q3 2019 | Q3 2020 | Difference | |
| 91 Day T-bill | 14.77% | 14.00% | 0.71% |
| 182 Day T-Bill | 15.16% | 14.09% | 1.07% |
| 364 Day T-Bill | 17.91% | 16.90% | 1.01% |
| 2 Year T-Note | 19.00% | 18.25% | 0.75% |
| 3 Year T-Bond | 19.70% | 19.00% | 0.70% |
| 5 Year T-Bond | 19.50% | 19.25% | 0.25% |
Stock Market Performance
The stock market could not recover from its negative return from 2019 as the GSE Composite Index (GSE- CI) and GSE Financial Stock Index (GSE-FSI) closed 3Q2020 with a year to date (YTD) returns of -17.75% and -17.03%, respectively compared to -15.83% and -14.59% in the previous quarter. The negative returns of the indices were worsen by the COVID-19 pandemic that hit Ghana in March, 2020, this has resulted in some level of uncertainty in the market.
Oil sector companies have had to deal with the erratic movement of world crude oil prices, which will make it difficult for these to adequately plan their operations. Manufacturing firms have had to battle with not being able to operate at full capacity in order to comply with social distancing protocols, as well as the cost of providing PPEs for staff, which is likely to result in an increase in expenses. Banks have to adequately manage their non-performing loans, which increased from 14.50% in Q1 2020 to 15.70% in Q2 2020 (15.7%) and marginally dropping to 15.50% in August 2020. Banks have also had to give borrowers moratoriums on their loans and also reduced interest rates on loans, which will affect their bottom line. Based on these circumstances, it is obvious that investors have reflected these information in the pricing of the stocks on the market, resulting in price declines.
During the quarter, there were 4 gainers. CPC was the top gainer with a quarterly return of 50.00%, closing the quarter at GH₵0.03. GCB was the second largest gainer ending the quarter at GH₵3.70, which represented an 8.82% quarterly gain. SOGEGH and MTNGH gained 6.67% and 3.39%, respectively ending the quarter at GH₵0.64 and GH₵0.61, respectively. On the other hand, FML led the pack of 9 losers, ending the quarter at GH₵1.04, this represents a quarterly loss of 40.57%. EGL lost the least during the quarter, its price dropped by 2.10%, closing the quarter at GH₵1.40 Prices of 19 stocks remained flat.
The performance of the gainers and losers during the third quarter on the GSE has been outlined in the tables below.
Gainers
| Share | Year High (GH₵) | Year Low (GH₵) | 1st July 2020 (GH₵) | 30th Sept 2020 (GH₵) | Gain (%) |
| CPC | 0.03 | 0.02 | 0.02 | 0.03 | 50.00%  |
| GCB | 5.10 | 3.40 | 3.40 | 3.70 | 8.82% |
| SOGEGH | 0.76 | 0.60 | 0.6 | 0.64 | 6.67% |
| MTNGH | 0.70 | 0.55 | 0.59 | 0.61 | 3.39% |
Losers
| Share | Year High (GH₵) | Year Low (GH₵) | 1st July 2020 (GH₵) | 30th Sep 2020 (GH₵) | Loss (%) |
| FML | 4.12 | 1.01 | 1.75 | 1.04 | 40.57% |
| UNIL | 16.40 | 10.21 | 13.98 | 10.21 | 26.97% |
| GGBL | 1.69 | 1.00 | 1.2 | 1.00 | 16.67% |
| BOPP | 2.86 | 2.10 | 2.5 | 2.11 | 15.60% |
| SCB | 20.00 | 13.50 | 15.5 | 14.00 | 9.68% |
| EGH | 8.09 | 5.80 | 7.5 | 7.00 | 6.67% |
| GOIL | 1.78 | 1.50 | 1.59 | 1.50 | 5.66% |
| CAL | 0.99 | 0.60 | 0.73 | 0.70 | 4.11% |
| EGL | 1.88 | 1.40 | 1.43 | 1.40 | 2.10% |
Some developments that occurred during the quarter included the appointment of Ms. Abena Amoah as the Deputy Managing Director of the Ghana Stock Exchange, effective 1st August, 2020. She is responsible for the operational activities of the Exchange, namely, Trading and Surveillance, Listings and New Products, the Ghana Fixed Income Market and the IT systems of the Exchange, as well as assisting the Managing Director in defining and implementing the Exchange’s corporate strategies and plans, among other responsibilities. Ms. Amoah is the first woman to occupy this position since the establishment of the Exchange.
During the quarter, the GSE suspended the listing of Sam Woode Limited as the company suspended its operations in accordance to Rule 13(4) (a) of the GSE Listing Rules, which empowers the GSE to suspend listing where a listed company has ceased to be an operating company. SWL has had to suspend its operations due to being hard hit by the introduction of the new GES curriculum, which led to a subsequent obsolescence of its textbook inventories and the stoppage of its book sales operations.
Mechanical Llyod PLC (MLC) also announced its intention to de-list from the GSE subject to shareholder, GSE and SEC approval. The proposed de-listing is in line with the company’s strategy to review its business model and structures to re-position itself going forward and will not impact job security, day-to-day operations and relationships with stakeholders.
PZ Cussons Ghana Limited (PZC) announced it will commence the settlement of successful tenders after closing its tender offer and successfully reconciling all the tenders received. The tender offer was priced at GH₵ 0.45 per share representing a 15.4% premium above the market price of GH₵ 0.39, which is the higher of the average 12-week market price and the market price on the company’s AGM Date.
MTN Ghana filed its papers at the Supreme Court seeking review regarding the declaration of MTN Ghana as a Significant Market Power (SMP) by the National Communications Authority (NCA). This was after the High Court dismissed the company’s application for a judicial review. The NCA declared MTN a Significant Market Power and therefore imposed special regulatory restrictions on the company. MTN Ghana indicated that the restrictions have the potential to inhibit the company’s growth and innovativeness and is seeking a judicial review that will ensure procedural fairness in the restrictions imposed on the firm.
Mid-Year Budget Highlights
The mid-year budget review presented by the Minister of Finance in July indicated that Government was unable to meet its revenue target of GH₵67.07 billion (actual – GH₵53.67 billion) resulting in a revenue shortfall of GH₵13.40 billion. This shortfall was as a result of decline in oil revenue, non-oil tax and non-tax revenue. Meanwhile, Government’s 2020 total expenditure has been revised from GH₵85.95 billion to GH₵97.74 billion. The upward revision of total expenditure were mainly as a result of provision for COVID-19 expenditure, which is estimated at GH₵11.66 billion and an increase in interest payment due to higher net domestic borrowing. The declining revenue and increasing expenditure has widened the fiscal deficit, resulting in a revision of the fiscal deficit from -4.7% to -11.4%.
Current Economic Environment and Investment Implications
The cedi experienced some pressures since the tail end of the first quarter of 2020 which has continued to the third quarter of 2020, as some foreign investors began to disinvest from local bonds amid growing uncertainty about the COVID-19 pandemic. The Cedi is likely to continue to further depreciate during the next quarter.
On the capital market, the GSE Composite and GSE Financial Stock Indices continue to record negative returns. We do not anticipate any significant changes in the market’s performance in the short term as investors adopt a wait-and-see attitude amidst increasing uncertainties of the impact of the COVID-19 on the economy, as well as the outcome of the December 2020 general election. Factors affecting various sectors listed on the stock market which could lead to possible price declines have been explained earlier in the report. The possible decline in share prices presents buying opportunities for investors who would like to take advantage of the low share prices on the stock market. Investors can increase shareholdings in anticipation of future price appreciation.
On the Ghana Fixed Income Market, yields are expected to rise over the short term due to government’s borrowing appetite stemming from a growing deficit which can be attributed to the COVID-19 pandemic and government spending during an election year. This however, presents buying opportunities for investors interested in both short and longer dated securities, especially at the upper end of the yield curve, as investors can purchase longer term securities to maximise returns. Eurobond prices in the frontier and emerging markets have significantly dropped and consequently yields have increased. This may present an opportunity for investors to increase their returns on Eurobonds investments.
