The market share of foreign investors on the Ghana Fixed Income Market (GFIM) has continued to decline over the past four years, as the market size has grown by over 100 percent since 2016 to about GHc 100 billion.
According to the Central Securities Depository (CSD), as at the end of 2019, the share of securities in the market held by foreign investors stood at 28.8 percent. This is a decline from 34.07 percent share by the end of 2018 and 37.60 percent share in 2017. In 2016, the share stood at 27.04 percent.
Over the past years, foreign investment in cedi denominated medium to long-term bonds has remained volatile due to the exchange rate risk associated with it.
Indeed, foreign investors in bonds on the GFIM quickly sell on the secondary market after enjoying relatively high yields for a short time, in order to avoid having those yields negated by exchange rate losses brought about by cedi depreciation. This in part is why trading volumes on the market are rising sharply.
Nevertheless, the Chief Executive Officer of Databank, Mr. Kojo Addae-Mensah has warned that foreign investors are making moves to increase in share on the Ghana Fixed Income Market (GFIM) towards an ultimately dominant position.
This is most likely to happen to due to the relative stability of the cedi against most trading currencies as well as the monetary stance of the Federal Reserve of US, where it forecasts no action on its main interest rate until 2021, after holding rates steady in its December meeting. The Fed’s median rate is forecast to hold steady at 1.6 percent through the end of 2020, but will increase to 1.9 percent in 2021. This is far short of current yields on Ghana’s medium and long term public and corporate bonds, of between 19 and 25 percent.
However, the First Deputy Governor of the Bank Ghana, Dr Maxwell Afari has also called for more domestic involvement to rectify the country’s current financing options. This was due to rush-out of foreign investors from Ghana’s capital market in 2019, which eroded the country’s net international reserves by about US$ 1 billion.
“We need to deepen the domestic market to make it attractive for pensions funds and our domestic investors to be able to participate in financing the gap that we have,” Dr. Afari stated.
This will ensure that the country has a well-balanced financing option, in order that the exchange rate risk is well contained.
The CEO of Databank also noted that government’s need for more funds on the domestic market has kept the rates high. This has served a cause of the poor performance of the equities segment of the Ghana Stock Market.
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