With the broader equities and fixed-income markets remaining suppressed owing to unfavourable macroeconomic conditions and lingering uncertainty over protracted negotiations with the International Monetary Fund (IMF), analysts are backing the sole Exchange-traded Fund (ETF) on the market to serve as a safe haven for investors.
Launched in 2012, the NewGold ETF (GLD) – which tracks gold prices – has seen its share price appreciate by 141 percent year-to-date (YtD); from GH¢108.6 to GH¢261.4 at the beginning of the third trading week in November.
This has been in large part due to the performance of its underlying security – gold – which has rallied to highs over the last three months, as it has served as a hedge against the prevailing spate of runaway inflation across the globe. Despite retreating from a peak of US$2,057 per ounce in March 2022 to $1,767.23 per ounce in the middle of November, the precious metal remains a safe bet.
In its review of the first three quarters of 2022 and offering projections for the final accounting period, the research arm of GCB Capital stated that despite the flight by investors to hard currency – particularly the US greenback – as a source of capital safety, it expects heightened inflation to diminish potential real returns.
Highlighting the potential of New Gold ETF as ideal for conserving capital, GCB Capital’s Head of Research, Courage Boti, stated: “We note the widespread currency speculation that started in the third quarter has extended through Q4 2022 thus far… While hard currency trade offers value, the resultant inflationary risks could erode the real returns. Thus, we recommend a focus on the gold-backed ETF, New Gold, which returned 53 percent over nine months to September 2022, mainly due to the depreciation effects, as a safer currency hedge to preserve capital.”
While President Nana Addo Dankwa Akufo-Addo, in his address to the nation on the current state of the economy, offered assurance that there will be no haircuts on bonds, analysts have expressed doubts owing to the value of existing national debt.
In the event that there is any significant restructuring to outstanding debt instruments, GCB Capital believes: “The ETF has further upside potential as investors scramble for cover to protect capital against the imminent haircuts on fixed-income instruments”.
This sentiment was similarly expressed by Databank Research, which was authored by Head of Research, Alex Boahen, in its forecast for the final quarter – wherein it believes demand for the ETF will be sustained as a result of the cedi’s depreciation and elevated inflation
“New Gold ETF continues to gain market traction as investors hedge against the local unit depreciation and galloping inflation. With the uncertain macro outlook, we expect the demand for New Gold ETF to continue,” Databank noted in its 9M22 Review and Outlook for 4Q22.
This comes as NewGold ETF has gained 32 percent over the past four-week period alone, making it the second-best performer on the GSE.
Despite the elevated yields, both firms are convinced of some opportunities in the equities market. Financial stocks remain a mixed bag as, on the one hand, uncertainty about the extent of debt restructuring continues to weigh heavily, while stocks in the sector remain significantly undervalued.
‘We flag a high systemic risk to the banking stocks if potential debt treatment includes a principal haircut… Despite the macroeconomic uncertainties, we believe financial stocks have marginal upside potential,” notes GCB Capital.
In addition to the aforementioned ETF, MTN is described as a “leading light” for the market by Databank on account of its third quarter results: wherein it posted earnings before interest, taxes, depreciation and amortisation (EBITDA) of GH¢1.41 billion, which was up 11 percent higher than the previous quarter and 13 percent ahead of Databank’s expectations. This was driven mainly led by robust data and voice revenue growth.
“Amid the challenging banking and FMCG sectors, we expect MTN Ghana and New Gold ETF to be the leading lights going into 4Q22… With rising profits from the data segment, a stable mobile money business and a solid dividend yield, we see the telco as a viable opportunity in the context of these uncertain market conditions,” Databank noted.