The domestic economy is likely to remain fragile in the months ahead, as the government explores alternatives to contain the falling local currency, rising inflation and high interest rates and reduce its expenditure, among others, an analyst, Nana K. Agyeman, at the Merban Stockbrokers has said.

In his analysis of the economy in the month of May, he noted that "With businesses and consumer sentiments falling in recent months, it is imperative that the government fixes the local economy".

He said already, businesses were not optimistic about achieving targets for capital expenditure, employment, sales and revenue as revealed by latest surveys conducted by the BoG, adding that "Credit by banks to the private sector has also slowed, while the National Petroleum Agency has maintained fuel prices for a second time after its bi-weekly review."

"Though these developments might placate businesses and consumers in the weeks ahead, the question that remains is ‘For how long’? but noted that "With the cedi still sliding, the continuous depreciation may weigh on the prices of goods and services as the rippling effects of our import-dependent economy weigh."

Domestic economy remains fragile

He said business and consumer sentiments remained at low levels as key economic indicators continued to underperform during the month under review.

"The local currency continued its downward slide; inflation and interest rates remained high, while erratic power supply hampered business plans," he indicated.

The worrying trend, according to him, saw labour unions call on the government during this year’s May Day celebrations to find bold initiatives that would reduce the current high unemployment rate, rising utility tariffs and escalating fuel prices.

He said businesses, which continue to bear the brunt of the present developments, sustained their clarion call on the Private Enterprise Foundation (PEF), summing up the feeling amongst members as "frustration", "chaos" and "uncertainty".

Mr Agyeman said "Businesses usually begin the year on an optimistic note but the AGI Business Barometer for 2014 quarter one recorded a significant dip of 90.13 in business confidence, one of its lowest in almost 4 years."

Meanwhile, the National Economic Forum held during the month, with participants drawn from all sectors of the economy, is yet to assuage the concerns of businesses and other economic players, he opined, adding that although the cedi’s volatility has reduced in recent weeks, some stakeholders claim that the outlook is promising for the local economy.

Currency market

The cedi continued to lose grounds against the major trading currencies, although at a decelerating pace. Improvements in the economies of a number of advanced countries in recent months, which gave a boost to their currencies, ensured that the cedi lost further grounds in May.

Although demand by investors, corporates, importers and other economic participants have also driven up the pressure on the local currency since the turn of the year, the level of volatility has dropped slightly in recent weeks.

On the back of the foregoing, the cedi closed the month down by 3.39 per cent against the dollar to GH¢2.89.

This compares to a depreciation of 4.08 per cent and 5.85 registered against the greenback in April and March. The cedi’s slide against the dollar was, however, no better as it slipped by 0.25 per cent against the greenback in May 2014.

The cedi also shaved 2.0 per cent against the Euro to GH¢3.94, while against the pound and the Swiss franc it trimmed 2.71 per cent and 2.04 per cent to GH¢4.84 and GH¢3.23 respectively. Comparatively, the cedi’s performance against the two currencies this month was better than the outturn in April when it trimmed 5.27 per cent and 4.44 per cent respectively. Against the South African rand, the cedi closed the month down by 4.54 per cent to GH¢0.28.

The stock market

The stock market bounced back from its two-month slide, with the indices getting a respite as eight advancers outmuscled fourteen laggards.

A turnaround in the fortunes of some financials which had lost grounds in the preceding weeks gave a lift to the bourse in May. Societe Generale, Ghana Commercial Bank, Ecobank Ghana, SIC Insurance and CAL Bank all recorded impressive gains after being under pressure in the two previous months.

Profit taking, which had seen the shares of some blue chip stocks such as EBG, SCB and GCB under pressure in March and April, also created buying opportunities as their prices had slipped to bargaining levels. Additionally, resilient Q1 results gave a boost to their multiples. As a result, as investors took advantage of opportunities, demand improved, while, additionally, orders by some speculators saw eight equities head north.

Advancers help indices regain luster

On the back of the aforesaid, the benchmark GSE Composite Index (GCI) clawed back some grounds as it rose 63.85 points (2.83 per cent) to 2,319.12. The GCI had shaved 131.07 points (5.49 per cent) in April and 34.57 points (1.43 per cent) in March. The return on the market, thus, improved to 8.11 per cent from 5.13 per cent at the end of April.

The GSE Financial Index (GFI) was also resolute, bagging 121.18 points (6.34 per cent) to 2,033.2, representing a year-to-date gain of 13.8 per cent. The Financial Index (FI) had lost 180.44 points in April. The GFI’s return, as a result, rose from 7.02 per cent at the end of April to 13.80 per cent.

Outlook for the stock market

Investors have been advised not to be dampened by some of the recent declines in some blue chip stocks.

Rather, they have been urged to consider the opportunities presented on the stock market and take positions at the current bargain prices.

Additionally, investors will be able to reduce the losses on their portfolios as buying shares at some of the current low prices will reduce the average costs of their holdings.

In the coming weeks we anticipate the search for bargains and also the correction in the prices of some shares on the market. Nonetheless, we expect the bourse to consolidate gains, as recent sessions have witnessed outstanding bids for a number of stocks.

It is believed that opportunities for the long term still exist in the Ghana Commercial Bank, Ecobank Ghana, Stanchart and Societe Generale as they are currently trading at some historically lower PE and P/Bs. BOPP, PBC and GOIL will also be amongst the stocks to be watched by investors.

On the flip side, Guinness Ghana and PZ Cussons may be amongst the stocks under pressure due to profit taking, while Fan Milk and Unilever may shed some grounds in the near term due to present production challenges.





Source Ghana Web