Investment analysts on Monday predicted that prices of registered stocks traded on the Ghana Stock Exchange (GSE) would continue to decline this year but said there was no cause for alarm because the phenomena was the result of market forces working to stabilise prices.
Speaking to the GNA in Accra, Databank's Rosalind Boateng said prior to this year's experience, the Exchange had experienced two years of bullish trading sentiments and almost two years of the other side but the GSE had experienced continuous bullish trading for three years running from 2002 to 2004.
During this period the shares were overpriced and this pushed the All-Share Index to register a percentage change of 157 in 2003 and 91.3 per cent change in 2004.
The All-Share Index measures the performance of stocks traded on Ghana's stock market.
From the beginning of this year, the market gauge had declined by -2.30 per cent and Ms Boateng explained that the indicators posted so far signified a happy ending to high capital gains enjoyed by investors.
She said for instance, Fan Milk Limited recorded more than 400 per cent in share price appreciation while Produce Buying Company gained about 145 per cent increase in its share price.
Similarly, some other stocks experienced increased capital appreciations and this is attributed to heightened investor and company interests.
Public education by brokerage companies and the GSE also contributed to the high investor interest experienced in the last two years.
Other contributory factors were the low interest rate on short-term investments such as the 91-day treasury bills, which declined to about 17 per cent and motivated speculative investors to make profits on the stock market.
Ms Boateng explained that such interests in the capital market led to the over pricing of the stocks.
Over pricing of share prices could be determined by the price earning ratio of each stock or the average of all the listed stocks.
Price earning ratios determines the number of years it would take to recoup an investment and the smaller or lower it is the better.
Trading in the year 2004 closed with an average price earning ratio of 24 times which meant that it could take about 24 years to sell some of the stocks on the market.
However, Ms Boateng said the current decline of investor interest had led to the demand side being overshadowed by the supply side.
The trend would stabilise prices and pull the stocks to their normal price values.
So far, Aluworks Ghana Limited, Standard Chartered Bank and British-American Tobacco are some of the stocks that have had their share prices declining significantly in this first quarter.
Ms Boateng said this week's trading was expected to remain stable with bearish sentiments and expressed the hope that the release of impressive full year results by some of the listed companies could produce some price increases on the bourse.
Listed equities on the bourse now stand at 30 but some companies including TV3, Scancom and State Insurance Company have stated their intention to list in the course of the year.