Share price volatility on GSE could be a simple matter of supply and demand

Feb 11, 2024 Letters

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Dear Editor,

Kaieteur News – While I am not a ‘stock market expert’ nor au fait with the technicalities surrounding the local stock exchange in terms of company laws and trading regulations, I offer my humble opinion on share price fluctuations. I see the Guyana Stock Exchange (GSE) where persons can buy and sell shares of companies as being comparable to a local market for example, Mon Repos market to some degree, where the scarcity or abundance of a product determines the price. In other words, if due to poor weather conditions fewer pumpkins are harvested by farmers and hence, in short supply the vendors would be able to sell the product at a higher price providing that there are buyers or vice versa.

If one were to visit the GSE’s website (https://guyanastockexchangeinc.com) it can be observed that for the latest session the volume bid is far less than the volume offered for several major companies, and this has been the trend for months. In fact, the share prices for these companies have steadily declined. At face value, there are many sellers and few buyers or more shares available (in the thousands) than the quantities required by buyers. Furthermore, sellers often lower their prices to get their shares sold and this affects the overall share price, and a pattern follows if conditions remain the same.

Interestingly though, one can observe that the share price of some small companies that are financial midgets in the business arena trade at a higher price than well-established profitable conglomerates. I believe that frequency of trade and number of outstanding shares and shareholders influence this anomaly. For instance, if a big company on the GSE issued a billion shares that are held by thousands of shareholders ranging from blue-collar workers to corporate shareholders then it can be expected that the shares of this company would be available and traded frequently on the GSE. On the other hand, you have small companies that make less profit but maybe 50 million shares were issued and these are held by a few hundred shareholders with the majority choosing to hold on to their shares then with less frequent trading occurring the price of this company’s shares may go up because when it is available it is quickly bought at whatever price the seller wants.

A buyer might believe that since the shares of some small companies are not frequently traded the likelihood of the price increasing is greater in comparison to large companies with frequent trading occurring and a steady supply of shares. And of course, the stock market cycle is a consideration. A few years ago, DIH (and other large companies) shares were offered at a higher price. At the time, the volume offered was far less than what was desired, so the sellers were able to get what they wanted. However, if you check the website now you would see that 1,833,200 DIH shares are available whereas the volume desired is 2,100. On the other hand, 110,700 CBI shares are desired yet there is no listed offering hence, if someone were to offer some now, he/she would most likely get their shares sold at a price higher than what it was last traded for and consequently the share price increases.

While persons who buy and sell shares do look at a company’s history and profitability, they may not want to put all their eggs in one basket. Investing in low and high-risk companies is a routine strategy, a diverse portfolio should spread the risk but at the end of the day there is still risk involved as with any business venture.

If one analysed the data regarding share price of the companies traded on the GSE you would realise that there has been a significant increase over the years for most if not all companies, the exceptions would be those that are less frequently traded (this information is available on the website for each company). If there is a sift soon and the supply becomes less than the demand for any share including DIH then the price goes up and this could signal the start of a bull run. Furthermore, brokers do give shareholders the option of reinvesting their dividends which implies that the very small sums one receives can be used to buy a few shares (by the broker) which in turn would affect the overall share price of the company when the trade is executed.

Also, if there is an abundance of shares of particular companies on the market due to whatever reason (funds needed, a major shareholder dies and there is a selloff of his/her shares, reports that the company may not be doing so well etc) then investors may hold off buying with the expectation that the price drops further or they may invest in other companies’ shares or ventures. Right now, the shares prices of major companies on the GSE have dropped from last year and for all these companies what you see at face value is excess supply of offered shares. Why is there such a major ‘all round’ sell off with few buyers? Bear market, lack of disposable income, state of the economy, diversion of funds into other ventures etc?

Editor, this is my layperson analysis of what is occurring with the share price of major and minor companies on the GSE. I am not privy to the operation of the GSE or am thinking of insider trading as it relates to the price fluctuations although this and other reasons could be present but on the surface what I see is a matter of supply and demand or as Jim Cramer said: ‘Every once in a while, the market does something so stupid it takes your breath away.’

Perhaps the ordinary Guyanese investors who buy shares are not so ‘financially sophisticated or conservative’ as to analyse financial reports and other documents of the companies they invest in, these risk takers just buy, and this causes fluctuations with the share price. Is this the usual way other stock exchanges operate? Possibly, the GSE is not operating like others, but it is not doing anything wrong still because of a bear market scenario (normal occurrence caused by external factors). If it’s a case where there is a need for improvement in terms of operation and control over price fluctuations if required then the specific problems should be identified, solutions offered and a course of action on how the solutions can be implemented explored.

Yours sincerely,
Narissa Deokarran

 

 

 

 

 

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• conditions fewer, GSE’s, Investing, poor weather, this information

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