Investment portfolios have recovered their market values, reaching their highest level since November 2022 following the Securities and Exchange Commission’s (SEC) directive to adopt the mark-to-market valuation approach.
This improved confidence in the market is attributed to successful settlement of the Domestic Debt Exchange Programme (DDEP).
“The prices we are seeing are the highest I have seen so far since they began the market value in November [2022]. I believe we can expect a significant price increase today,” an anonymous source from an investment firm mentioned.
Investors are reportedly seeing some increases in their portfolios, with one source noting that yesterday’s prices were the highest they had seen since the market value approach was adopted. While some investors had initially lost funds due to the new directive on portfolio valuation, there are now signs of recovery; with one investor reporting that her funds have almost returned to their original amount.
The investor said: “My funds have recovered almost to the original amount invested in a mutual fund, after I lost about a third of my funds last year [GH¢44,000] due to the new directive on portfolio valuation,” adding, “I now have GH¢61,000 in my portfolio out of original amount of GH¢64,000.”
“It is worth noting that since November we have not been purchasing bonds with new deposits. Instead, they are reflected in the market, creating a new portfolio. Newly-deposited funds are allocated to this portfolio and purchased at the current market value,” the anonymous source from the investment firm added.
Adoption of the mark-to-market valuation
Last year, while adopting the new valuation method, SEC indicated the move seeks to protect all classes of investors and the market’s integrity by ensuring “a fair and transparent playing field so that both investors and operators are protected”.
At the time, fund managers were witnessing a sharp increase in redemption requests – fuelled by the prevailing high-interest rate regime as well as a desire to seek safety in alternate asset classes such as currency and precious metals. This elevated the need for fund managers to sell – at a loss – securities which would otherwise have been held to maturity.
“The SEC has taken note of the current high-interest rate environment in Ghana with its adverse effects on liquidity in the secondary market for bonds and high clients’ redemption requests – necessitating the sale of investment securities ordinarily designated as held to maturity,” the Commission’s directive read in part.
In such a situation – wherein interest rates have gone up and bond prices fallen, without the mark-to-market and investors opting to exit for whatever reason – investors should be made to realise the investment’s value at that moment as it does not reflect current market conditions.
This explains why investors were cautioned about the risk of losing a portion of their holdings due to current market conditions – a phenomenon that is accurately captured through the mark-to-market model, which does not amount to a ‘haircut’ with investors better-off holding closer to maturity.
The SEC directed stakeholders – fund managers, custodians and trustees – to obtain prices available from the Ghana Fixed Income Market (GFIM) for all listed fixed-income securities to enable the pricing of securities to reflect market values.
The GFIM is expected to make available end-of-day prices for all fixed-income securities during this year, while in the interim fund managers, custodians and trustees are directed to use average prices published by GFIM to mark-to-market their fixed-income securities.
Unlisted securities are also expected to be valued periodically, taking into account market movements, contractual cash flows and recoverability of the underlying assets.