Investing In The Ghanaian Capital Market For The Future

"The best time to plant a tree was twenty years ago, the second best time is today" A Kenyan Proverb

Whatever you have is a seed, you can decide to chew it now or plant it and reap the benefits in harvest time. If you chew your seed now, you would have nothing to reap in the future. It is very important to invest as it comes with enormous benefits because if you sow a seed under the right condition, you would reap twice or thrice of what is sown. Investment means putting your money to work to earn more money over a period of time. If it is wisely done, it can help you meet your financial goals like buying a new house, paying for college education of your children, enjoying a comfortable retirement, or enhancing your ability to afford whatever you deem important. You do not have to be rich to be an investor because with only GHc 10, you can be a shareholder of a listed company on the Ghana Stock Exchange. Investing even a small amount can produce considerable rewards over the long-term, especially if you consistently invest. But you need to decide about how much you want to invest and where.
What does it mean to invest in the capital market?

Stock market is a place where shares of different companies are traded. If you invest in the stock market, you're buying shares of publicly traded companies. You are technically part owner of the company. If the share price rises, you can sell your shares for a profit known as capital gains. In addition, you may receive dividends from the company. Capital gains, dividends, bonus share issues and right issues are among the several benefits of investing in shares. Capital gains are increase in the value of a capital asset (investment or shares) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant. A rights issue is a way in which a company can sell new shares in order to raise capital. Shares are offered to existing shareholders in proportion to their current shareholding, respecting their pre-emption rights.The risk however is that, if the share price falls then you lose portion of money on the investment. The price of shares depends on demand and supply. When the share price of a company falls an investor buys it and sells the same when the price rises.
Why should you invest?

Investment is a necessary condition for wealth creation; Investment helps secure your financial future and a comfortable retirement. Apart from gaining financial freedom, investment helps you to increase your wealth if you should invest for a long period of time. It is not an easy thing to consistently invest despite the meager salary or many commitments that you must meet but it would pay off if the gains from the investment are flowing in. You would be richer if you earn your salary and still have another stream of income.

What should I consider before investing?

Money is hard to come by, so if you should work hard and earn some money, you should not just inject it in any investment vehicle because others are doing the same. You should be convinced with facts and figures before you take such a crucial decision. Your decision to invest should be based on research and not sentiments. The research would help you discover the past performance, the prevailing conditions in the sector or industry you want to invest in, the future prospects with regards to profits and dividends as well as key project the company is currently handling that are crucial to profitability. After you are convinced to invest in that particular company, objectively decide what your investment objective is, what your investment time horizon is, your risk profile amongst other salient consideration. Your investment time horizon is the period of time you are prepared to wait for your investment to mature. Your investment objective is the reason why you are investing.

The players in the capital market

A Licensed Dealing Member (LDM) is a corporate body licensed by the Exchange to deal in listed securities. The LDMS employ Authorised Dealing Officers (ADOs). ADOs are sometimes referred to as broker. A stockbroker is a professional who helps you to buy or sell securities. They serve as intermediaries between buyers and sellers of securities. They are very useful in the securities market because all investments on the GSE are done through them. They perform advisory services in terms of stocks selection for investors, investment portfolio design and so on.
Registrars: Registrars of shares keep an up-to-date record of all stocks bought, which includes names of individual shareholders, shareholdings, addresses, and signatures amongst other salient information. They are also responsible for paying dividend to qualified shareholders when its due. Indemnity for loss certificates and for lost dividend warrants forms are given upon request of holders when documents are lost or destroyed and after completion, new ones are issued. Among their numerous functions, transfer shares on behalf of a deceased holder. There are four registrars of listed stock on the Ghana Stock Exchange. They are Ghana Commercial Bank, National Trust Holding Company (NTHC), Merchant Bank and Computer shares Ghana.

Custodians: A custodian is an entity licensed to hold securities on behalf of foreigners. A custodian is a clearing member but not a trading member. It settles trades assigned to him by trading members. Barclays Ghana is one of them.

Regulators of the Capital Market
There are laws in place to protect investors investing in the capital market. The main regulators of the industry are the Securities and Exchange Commission (SEC) and Ghana Stock Exchange (GSE). Other regulators are Bank of Ghana (BoG) and Ministry of Finance and Economic Planning (MOFEP). The Securities industry is governed by the Securities Industry Law 1993, PNDCL333. The Law also provides for the functions of the Commission, the establishment of stock markets, the licensing of Stockbrokers/Dealers and Investment Advisers, Unit Trusts and Mutual Funds, registers of interest in securities, the mode of conduct of securities businesses, issues concerning Accounts and Audits, the establishment of fidelity funds and trading in securities.

ROLES OF GOVERNING BODIES IN THE SECURITIES INDUSTRY

Securities and Exchange Commission (SEC)

• Licensing and regulating all market operators such as Investment Advisors, Dealers and their representatives, including the regulation of the Ghana Stock Exchange
• Overseeing and regulating the fund management industry in Ghana and administering the securities laws affecting Collective Investment Schemes such as Unit trusts and Mutual funds
• Overseeing the disclosure of material information to the investing public by companies, including securities listed on the Ghana Stock Exchange
• Performing post prospectus checks on the utilization of funds collected through public subscriptions.
• Investigating any breaches of the securities laws and the Companies Code; and

Ghana Stock Exchange
• To control the granting of quotations on the securities market in respect of bonds, shares and other securities of any company, corporation, government, municipality, local authority or other body corporate;
• To regulate the dealings of members with their clients and other members
• To co-ordinate the stock dealing activities of members and facilitate the exchange of information including prices of securities listed for their mutual advantages and for the benefit of their clients;
• To co-operate with associations of stockbrokers and Stock Exchanges in other countries, and to obtain and make available to members information and facilities likely to be useful to them or to their clients.

Even though there have been instance of fraud in the capital market in the west like cases of Goldman Sachs and Lehman Brothers, the Ghana Securities market is not that sophiscated as we currently deal in derivatives. The regulation of the securities market in Ghana is aimed at investor protection, prohibition of fraud and deceit as well as other misrepresentations. The brokers on the GSE are expected to comply with some membership regulations and the listed companies themselves are expected to comply with disclosure of results and other pieces of material information that are price sensitive. So have no cause to worry about fraud in the Ghanaian capital market. You are highly protected by the regulators of the Ghanaian capital market.
What investment is appropriate for me?
In deciding which investment is appropriate for you, you may need the services of a broker. These professionals will help you ascertain your risk profile and help you choose develop a portfolio of stocks that would meet your needs. The general rule how ever is that, if you are young and just beginning your career and will want to invest over a period of time, you can invest in shares that have the potential for growth but pays small dividend. This is because you can live on your salary. This category of investors gains a lot in a bullish market when share prices take an upward trend continuously. It would also be advisable to diversify your portfolio as a young investor.

Nearing retirement: The broker would help you design a portfolio of stocks that would bring you regular income through dividend payments and capital gains.

Now that you have a fair idea of what investment in the capital market is all about, kindly direct all questions, comments and suggestions to [email protected]

©, Sophia Kafui Teye