Investors opt for safe bets as elections near

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By Joshua Worlasi AMLANU & Ebenezer Chike Adjei NJOKU [email protected] / [email protected]

Investors are adopting a more cautious approach as upcoming December general elections approach, reflecting concerns about potential market volatility.

Priority is given on short-term investments, particularly in light of potential risks associated with the market environment.



In a recent note to investors, IC Securities emphasised the need for caution and liquidity – highlighting election-related risks and the broader risk-off environment.

As part of its strategy, the firm is focusing on short-term repos and fixed deposits with reputable banks, while keeping a close eye on interest rates and inflation trends.

In its August report, IC Securities noted that the fund closed with a 21.8 percent Year-to-Date return. The portfolio composition includes 49 percent repos, 23.7 percent in Treasury bills, and 23.1 percent in fixed deposits.

The firm’s emphasis on liquidity is a direct response to potential market uncertainties ahead of the elections.

“Liquidity remains our priority in the current risk-off environment,” IC Securities stated, emphasising the need to prioritise flexibility and short-term investments during this period.

The company also pointed to stability of interest rates, with yields for government bills remaining relatively unchanged. Currently, the 91-day and 182-day bills stand at approximately 24 percent and 26 percent respectively, while the 364-day bill is at about 27.9 percent.

Although inflation dropped faster than expected by 80 basis points to 20.9 percent in July, the cedi continues to depreciate against the U.S. dollar –  now trading at around GH¢16 on the retail market.

This, combined with steady yields, could influence the Bank of Ghana’s (BoG) Monetary Policy Committee (MPC) decisions in coming months.

IC Securities anticipates a possible rate cut by the MPC, as global central banks are expected to pivot away from the rate-hike cycle soon. However, the firm cautioned that any rate cut could put further pressure on the cedi, potentially weakening it further against the dollar.

“We are mindful of the potential impact on the currency,” IC Securities noted, while underscoring the challenges of balancing lower rates with currency stability.

The firm’s outlook on interest rates suggests that while a potential rate cut could push yields lower, it also presents an opportunity to lock-in higher yields for longer maturities.

Nonetheless, IC Securities is maintaining its focus on shorter-term investments to protect against election-related risks, reflecting its caution regarding market uncertainties as elections approach.

Databank, in its second-quarter report, echoed this sentiment by outlining a similarly cautious approach to navigating Ghana’s fixed-income market in second-half 2024.

The report forecasted a continued decline in inflation, which would likely push Treasury bill yields downward. However, it warned that high Open Market Operation (OMO) bill rates and increased government borrowing might hinder a smooth decline in yields.

Databank’s report revised its full-year estimate for government borrowing from GH¢180billion to GH¢220billion, a 22 percent increase.

With about GH¢115billion already raised in first-half of the year, government is expected to raise an additional GH¢105billion in the second half, amounting to an estimated weekly demand of GH¢4billion. This surge in borrowing is driven by the need to refinance maturing obligations, with around GH¢90billion expected to mature in  second-half 2024 alone.

The report also highlighted that OMO bills are becoming increasingly attractive to investors, with the BoG’s 56-day OMO bill yielding 29 percent compared to government’s 364-day Treasury bill rate of 27.9 percent.

This competitive rate is drawing institutional investors away from Treasury bills, further complicating the path to yield-decline. Commercial banks, under pressure to maintain optimal cash reserves due to BoG’s three-tier Cash Reserve Ratio (CRR) directive, are also adopting a more cautious approach to investing in government securities.

Liquidity challenges in the market could continue to persist, especially as commercial banks focus on balancing their reserves and managing systemic risks. Databank’s report highlighted that these dynamics are likely to suppress demand for Treasury bills from both commercial banks and institutional investors, creating a more complicated landscape for investors.

Beyond the domestic market, both IC Securities and Databank emphasised the significance of Ghana’s ongoing external debt restructuring. Ghana’s debt crisis, which led to a US$3billion bailout from the International Monetary Fund (IMF), remains a key concern for investors.

However, the successful restructuring of external debt could provide much-needed fiscal space for government, potentially improving investor sentiment toward government bonds.

Databank noted that completing both the Domestic Debt Exchange Programme (DDEP) and external debt restructuring will likely boost investor confidence, particularly in the secondary bond market.

The restructuring efforts, combined with government’s continued commitment to its IMF programme, could lead to increased trading activity in the bond market and a more favourable investment climate.

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