ELECTION 2016: WHY YOU SHOULD INVEST ON THE STOCK MARKET

Stock-ExchangeFinally, 2016 financial year is here and investors are poised for a great investment year backed by rigorous analysis and best investment strategies.

In adopting the appropriate strategy for the year, investors would be concerned about the impact of the 2016 elections on the stock market. Election years in Ghana are characterized by high deficits, rising inflation as a result of excessive spending, low direct foreign investments, declining cedi and rising interest rates. Following this development, most investors adopt a conservative strategy by investing in fixed income instruments or a “wait and see” attitude as they hold a pessimistic view on stocks.

In spite of the relative gloomy picture of Ghana economy in election years, the stock market would perform better than 2015 based on the reasons below:

  1. Money market rate to decline: following government plans to reorganize the structure of its domestic debt, medium to long term debts would be used to finance infrastructure. This is a shift from the use of the short term debts which is considered unsustainable. All things being equal, the government of Ghana Treasury bill is likely to fall marginally in the 2016. Should this continue, investors may be encouraged to move to the capital market as T bills may be less attractive.
  2. Taxes on Investment: Effective January 1, 2016, interest on investments (including interest on bonds, fixed deposit, T Bills) would be subject to a 1% withholding tax. This analysts and industry players say would impact negatively on investment.
  3. Relative low stock prices: One of the famous investing adages is “buy low, sell high”. This means that, you buy stocks when prices are falling and sell when stock prices are high. In 2015, 19 stocks fell in value and only 8 appreciated. GWEB, SIC and UTB led the laggards with -67%, -62% and -60% respectively. The general decline presents opportunities for investors in 2016.
  1. Stocks outperform money market instruments in election years: Historical trends indicate that stock have performed better than money market instruments in the last three elections. Average stock returns for the three election periods amounted to 57.76% as compared to the T Bill’s average returns of 23.12%. The low performance of the stock market prior to the 2014 election could be attributed to the underdevelopment of the market at the time and the high interest rates which served as a disincentive to invest in the capital market. It is very unlikely that, Government of Ghana bills would go as high as 30%.gse returns

Advertisements