There is the traditional and age-long mindset of investing in government instruments like Ghana treasury bills and bonds and which is; to be exposed to low risk and be ready for low returns.
To get a good diversification portfolio, individuals invest in government instruments for income and/or safety while they invest in the higher risk private instruments for growth because they potentially give higher returns. Afterall earn a bit of money for the higher risk taken.
But this age-long mindset and truth seem to be ebbing away in the Ghanaian market. The lower risk government instruments are rather giving higher returns while the private investment market generally is returning lower rates to investors. Even pensions funds are exhausting all their government instruments allowance before they look at the investment in the private space.
LOW RISK, HIGH RETURN
With investors now getting to understand that rate of return is not everything in investments, they are prepared to take something above inflation and reasonably above treasury bill rates. But what do see now? The 91-day government treasury bill is rewarding investors with higher returns than what banks are giving in fixed deposits. Government instruments are also yielding higher than investment houses are returning.
Referring to table below, the government 91-day is giving 14.68% while a typical bank’s FD is giving averagely 12%.
| Financial Market Information | |
| GOG* 91-Day Treasury Bill | 14.68% |
| GOG 182-Day Treasury Bill | 15.15% |
| GOG 1-Year Note | 17.91% |
| GOG 2-Year Fixed Note | 19.00 % |
| GOG 3-Year Fixed Bond | 19.70% |
| GOG 5-Year Bond | 19.50% |
| Average Bank Savings Rate | 7.55% |
| Average 182-day Bank Fixed Deposit % | 12.00% |
| Average 91-day Bank Fixed Deposit % | 11.50% |
| Average Bank Lending Rate % | 28.00% |
| Inflation Rate % | 7.80% |
| Policy Rate % | 16% |
| Mutual Funds | Varying and depends on investment strategy of investment company |
GOG: Government of Ghana *Rates quoted are annual rates as at 14 October 2019
So the question is why would an investor leave a less risky but higher yielding investment to go and invest in a lower yielding and yet a higher risk asset?
The investor should be a ‘Father Christmas’. This trend is also affecting the performance of mutual funds and other locally issued investments. It puts too much pressure on investment houses to do ‘magic’ in such a hostile investment environment. This is what created the market indiscipline where smaller financial institutions in a bid to compete promised sky-rocketing returns. These high returns eventually crushed them.
In spite of the uncertainties in the financial system, people still want to invest but the prevailing question is, where do I invest?
HIGH LEVELS OF WITHDRAWALS FROM PRIVATE INVESTMENT COMPANIES
Private investment companies have had to battle with high withdrawals from their portfolios only for investors to take them to the government. Why not, the safer government instrument is offering a higher rate. What makes it worse for the investment companies is that the other investment options available to them are floundering. The equity market is struggling and not enough corporate bonds. Banks are not giving them any good rate. Equity financing is still in the infantile stages and are for long term which investors may not be ready to go for because of ultra high risk.
BANKS FIXED DEPOSIT (FD) & SAVINGS RATES
Banks continue to give uncompetitive rates. Banks who are already awashed with cash after the capitalisation have set their fixed deposit rates that clearly tells the investor to go away with their money. Some banks are offering FDs as low as 11% savings returns as low as 5% per annum.
Ideally there should be a sound reason why investors would go for non-government instruments. And that is for a relatively higher return. The environment is showing something else.
LONG-TERM GOVERNMENT BONDS
Additionally, government is seen issuing long term government instruments. This was not the case some few years ago. This gave an opportunity for e.g. mutual funds to position themselves as a long-term investment. Now the long-term GOG bonds would compete with private investment products like the mutual funds which works better in a long-term investment.
GOVERNMENT INTERVENTION
The dual factors of higher investment returns from GOG instruments and available long-term investment are a threat to the investment management sector. Investors will shy away from them.
The government needs to do more to intentionally allow funds to flow to the private investment environment rather than the Ghana treasury bills and bonds. The borrowing appetite of the government is killing the private investment sector. The rates being offered are too high.
This explains why investors now prefer to invest in government treasury bills and bonds rather than into the private investment instruments.
