Ghana Stocks’ Beaten-Down Valuations May Help Extend 45% Rally
Ghana Stocks’ Beaten-Down Valuations May Help Extend 45% Rally
(Bloomberg) -- Ghana stocks have rallied in 2021, snapping three years of declines, as the pandemic’s impact on the economy eased. And there are signs the market’s beaten-down valuations may spur further gains in 2022.
The Ghana Stock Exchange Composite Index has surged 45%. Even so, price-to-earnings ratios in the West African nation remain about half their historical levels, according to Alex Boahen, head of Research at Databank Group in Accra.
The virus and impending elections cast a shadow over Ghana stocks a year ago. But, with the poll successfully completed and economic growth rebounding from the slowest in almost four decades, investors are far more positive about local equities.
“The renewed confidence after the successful 2020 elections coupled with the impact of Covid-19 on the economy subsiding, brought some revival to the market,” Boahen said by phone. “Valuations were very low, so amid signs of better economic performance investors saw that it was a good time to get into the market.”
Stocks in the 32-member index trade at almost six times future earnings, compared with 4.5 times in early 2021. Those levels may yet prove attractive to investors, Boahen said. He expects more gains, albeit shy of 2021’s resurgence, due to lingering concerns around the fiscal deficit, inflation and currency depreciation.
“Given that the historical P/E is between 11 times to 12 times, investors will still generally see value in stocks next year, supported by stronger economic growth.”
©2021 Bloomberg L.P.