By Dela Herman AGBO
One of the most common comments heard whenever the Ghana Stock Exchange (GSE) is discussed is that “the market is not liquid enough.” Many investors believe it is difficult to sell shares and quickly convert them into cash. At the same time, others complain that even when they are ready to invest, it is surprisingly difficult to buy some listed stocks.
These concerns are real, and they raise an important question: what exactly is liquidity, and why is it so critical to investors and the growth of our capital market?
Understanding Liquidity
Liquidity refers to the ease with which an asset can be bought or sold in the market without significantly affecting its price. In a liquid stock markets like NYSE, LSE and others, investors can enter and exit positions smoothly, prices reflect fair demand and supply, and transactions occur regularly.
Liquidity is not simply about having many companies listed on the exchange. It is about whether there are consistent buyers and sellers, and whether investors can convert shares into cash when the need arises. The fact is the liquidity position of the market in Ghana has improved significantly since the introduction of the new 3 tier pension scheme act but we still have a lot of gap to cover to the extent of introducing intraday trading.
Why Liquidity Matters to Investors
Liquidity is one of the most important factors investors consider before committing their money. Investors want confidence that:
- They can sell their shares without long delays
- They will not be forced to accept steep discounts just to exit
- Prices are fair and transparent
- Their investments can be converted into cash when needed
In markets with low liquidity, investors face what is known investment as liquidity risk—the risk of being unable to sell an asset at a reasonable price or within a reasonable time. This risk discourages both domestic and foreign investors, no matter how good the underlying companies may be. In simple terms, investors fear being stuck with an asset more than they fear short-term price fluctuations in the market.
The Liquidity Challenge on the GSE
On the Ghana Stock Exchange, trading activity is heavily concentrated in a few stocks. While some counters trade relatively frequently, many listed stocks experience very low or no trading activity for extended period of time.
As a result:
- Some investors struggle to sell shares in the market
- Others find it difficult to buy certain listed stocks
- Price discovery becomes very weak
- Market participation remains limited among few market players – pension funds, CIS and a few individuals.
This situation feeds the perception that the GSE is illiquid, even though many of the listed companies are fundamentally sound.
The Missing Link: Market Makers
In many developed and emerging markets, liquidity is supported by market makers—institutions that are willing and financially capable of continuously buying and selling shares.
Market makers:
- Provide bid and offer prices
- Use their balance sheets to absorb short-term imbalances
- Ensure that buyers and sellers can trade even when the other side is temporarily absent
- Improve price discovery and trading confidence
Without strong market makers, trading depends solely on coincidental matching of buyers and sellers, which is difficult to sustain in a relatively small market.
The Need for Strong, Well-Capitalized Dealers
For market making to work effectively, brokers and dealers must have sufficient financial strength. They need capital to hold stock inventory and manage short-term risk.
At present, many market operators lack the balance sheet capacity to play this role at scale. This raises an important policy question: how do we deepen liquidity in the interim while the private sector builds capacity?
Can SSNIT Play a Market-Making Role?
One practical idea worth serious consideration is empowering SSNIT Investment Unit to act as a market maker.
SSNIT already holds significant stakes in many companies listed on the GSE. With its long-term capital base and large equity holdings, SSNIT is uniquely positioned to:
- Provide two-way prices on selected stocks
- Improve trading activity
- Enhance market confidence
- Reduce sharp price swings caused by thin trading
This role would not undermine SSNIT’s mandate; rather, it would enhance the value of its holdings by improving market efficiency.
Should Government Establish a Market-Making Entity?
Another option is for government to establish a dedicated market-making company, possibly in partnership with private investors and fund managers.
Such an institution could:
- Act on both the buying and selling sides of the market
- Support under-traded stocks
- Improve liquidity and price transparency
- Make the GSE more attractive to institutional and foreign investors
Importantly, this would not crowd out private participation. Instead, it would crowd in investors by reducing liquidity risk, which remains one of the biggest deterrents to market participation.
Why Liquidity Is Critical for Ghana’s Economic Growth
A liquid stock market listed on the GSE:
- Attracts long-term domestic and foreign capital for investment
- Lowers the cost of capital for businesses
- Supports privatization and capital raising across all sectors
- Encourages savings and investment among the citizens
- Strengthens the financial system in Ghana
So you see, liquidity is therefore not just a market issue—it is a national development issue as well.
Conclusion
It is fair to conclude that liquidity is ultimately about confidence—confidence that investors can buy when they want and sell when they need to. Until Ghana deliberately addresses the structural gaps in market making, perceptions of illiquidity will continue to limit the growth of the stock market.
With strong institutions, supportive policy, and professional market participants, the Ghana Stock Exchange can evolve into a more liquid, vibrant, and attractive investment destination in the sub-region.
At EcoCapital Investment Management Limited, we strongly believe in the development of deep and efficient capital markets. Through professional fund management, active investment strategies, and market development advocacy, we remain committed to supporting liquidity, transparency, and sustainable wealth creation for investors.
A liquid market is not a luxury—it is a necessity for Ghana’s long-term investment growth.
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