"...emerging markets will grow faster than the
developed world for decades to come."

Gideon Rachman, The Financial Times

Stocks on Guyana Stock Exchange Rise Dramatically

Stocks on Guyana Stock Exchange Rise Dramatically

As interest in Guyana grows, selected securities on the Guyana Stock Exchange (GSE) have risen dramatically so far this year. As a result, the market capitalization of the 19 listed companies surpassed GY$1 trillion at the end of trading on April 25, 2022, to reach $1.014 trillion.

 

The first four months of 2022 experienced the biggest surge in market capitalization, growing by 53.6% from GY$660.3 billion to $1.01 trillion. Last year, the GSE’s market capitalization grew by 46.6%, from GY$395.8 billion to $580.1 billion.  Up until 2017, growth in market capitalization was much slower, moving from $18.3 billion in 2003 when the GSE was first established to $166.2 billion. (See Chart, Guyana Stock Market Capitalization Soars).

 

According to a press release by the Guyana Association of Securities Companies and Intermediaries Inc. (GASCI) the growth in market capitalization “is a testament to the strong performance of the companies listed on the exchange and the confidence that investors have in the financial future of these companies and the economy as a whole,“ adding that “this trend is most likely influenced by the projections of increased future national economic gains emanating from the oil and gas industry, its supporting industries and other fast-growing sectors of the economy.”

 

In spite of its growth, Guyana currently has a small, underdeveloped and relatively illiquid stock exchange, with 19 listed companies, of which only eight companies are actively traded. Among these companies are Banks DIH (DIH), Demerara Distilleries Limited (DDL), Demerara Bank Limited (DBL), Guyana Bank for Trade and Industry Limited (GBTI), Citizens Bank Incorporated (CBI), Republic Banks (Guyana) Limited (RBL), Demerara Tobacco Limited (DTC), and Sterling Products Limited (SPL).

 

Unlike developed markets where stocks are traded throughout the business day, stocks on the GSE are traded at the end of each week. In global terms, Guyana would be classified as a frontier market, that is, markets that are emerging but are not yet classified as emerging markets. Generally, frontier markets are illiquid, have a small number of listed companies and are undercapitalized.

 

The dramatic increase in market capitalization was triggered by a surge in price of selected stocks such as Banks DIH which rose from GY$80 at the end of January 2021 to $301 at the end of April 2022, Demerara Distilleries Limited which rose from $120 to $400, Demerara Bank Limited from $91 to $$328, Demerara Tobacco Limited from $1,000 to $2,500, Guyana Bank for Trade and Industry Limited $720 to $1200, and Republic Bank from $185 to $521. Evidently, investors in these stocks would have made substantial gains.

 

While some stocks have performed well on a price basis, they could be considered overvalued based on their price/earnings (P/E) ratio, which is measure for valuing a company based on its current share price relative to its earnings per share (EPS). For example, DDL is trading at a high P/E ratio of 68.8, while a comparable company DIH, is trading at a P/E ratio of 35.5.

 

The dividend yield, which is a percentage of a company’s share price it pays out each year is also an important consideration for investors. A review of the chart below shows that among the actively traded companies, DTC has the highest dividend yield at 3.50%, followed by Citizens Bank Incorporated (CBI) at 2.4%. From a pure valuation perspective, CBI is the most undervalued stock, whereas DDL is the most expensive stock.

 

As well, stock markets can be an attractive source of foreign investors who typically seek attractive investments outside their own borders. In the process, they can provide domestic companies with capital to grow their businesses.

 

Arguably, while the risk of investing in these markets is greater, the rewards can be significant. Typically, investors who invest in frontier markets like Guyana benefit from what is referred to as the “first mover’s advantage,” that is, they get in when stocks are relatively undervalued and hold their investments for the long-term with the objective of realizing significant gains.

 

While the stocks on the GSE have performed well, its regulatory, legal, disclosure, reporting and trading infrastructure is still evolving, making investment decisions challenging and difficult for global investors. That’s why, unlike developed markets, frontier markets are often categorized as a brave new world for investors willing to take the risk of investing in countries whose stock markets are now at a formative stage of development.

 

Incidentally, the GSE was established in 1993 in accordance with the objectives of the IMF’s Guyana Poverty Reduction Strategy, with the aim of encouraging and/or supporting the private sector to raise local financing for investment. At that point in time the country was overburdened by debt and its recovery was being supervised by the IMF.

 

Essentially, stock markets like the GSE play a major role in mobilizing capital for corporations as well as governments to support their development initiatives. They also provide domestic investors with the opportunity to invest in listed securities and benefit from potential gains over time as the companies in which they invest grow.

 

However, only a small percentage of individuals in Guyana or companies take advantage of the benefits of the country’s stock exchange.

 

 

Dwarka Lakhan

Dwarka Lakhan

Dwarka Lakhan is a pioneer in emerging markets journalism in Canada. His first emerging markets article, “Africa Joins Ranks of the Emerging,” appeared in Investment Executive, Canada’s leading newspaper for financial advisors, in September 1994. Since then he has written hundreds of articles on the full spectrum of emerging markets and has conducted more than two thousand interviews with emerging and frontier markets investment professionals.


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