In brief
- Ghana’s 2023 Domestic Debt Exchange Programme (DDEP) left in its wake an inactive bond market, shortened domestic yield curve, weakened solvency ratios in the banking sector, and limited investment options for different categories of investors. On the stock market, banks felt the second-round effect of their significant exposure to the DDEP. As the sector’s share prices plummeted to drag the Financial Stock Index to a FY2023 loss of 7.4%, Telco, FMCGs, and petroleum stocks defied the challenging macro backdrop, lifting the GSE-Composite Index to close 2023 with a full year gain of 28.1%.
- As Ghana and the global economy enters a new phase of uncertainty, marked by elections in some investible markets amidst heightened geopolitical conflicts in Eastern Europe and the Middle East, we issue our 2024 edition of the IC Big Ideas with cautiously optimistic perspectives – akin to whistling in the dark.
- Idea #1: Treasury and BOG securities are good for conventional low risk-appetite investors as the 182-day and 364-day T-bills will offer better inflation-adjusted returns over the holding period. However, we emphasize that the back-end of the T-bill curve is only suitable for investors who are indifferent to the uncertainty and likely macro-related shocks in the lead up to Ghana’s upcoming elections in December 2024.
- Idea #2: During our 2023 local investor roadshows with our Global Markets team, a key takeaway from the investor meetings was the rising appetite for currency hedge. We think the heightened political activities and geopolitics in 2024 strengthen the case to hedge against potential election-related shocks to the Ghanaian Cedi. We recommend hedging via the IC Africa Fixed Income Fund, US Treasuries, USD-denominated Fixed Deposits, and US Exchange Traded Funds (ETFs).
- Idea #3: Plug into Ghana’s infrastructure and credit gap to connect alternative assets with sustainable cashflow. Subject to diversified portfolio of properties and a sustainable revenue stream, we think the Real Estate and Real Estate Investment Trusts (REITs) sector provides an option. We also view the conservative credit stance of banks as a financing opportunity in the real sector. This could be filled by syndication of private pension funds and bank balance sheet with structured finance such as Asset-Backed Securities for energy, manufacturing, construction, and Transport sector businesses.
- Idea #4: Buying the dip: Explore stock picking opportunities in the banking sector. Given its reassuring investment thesis, SCB makes the cut and is our top pick in 2024, for now. We expound on the upside potential of the stock in our upcoming Initiation of Coverage Report in which we issue an ACCUMULATE rating on the stock with the fair value of the stock provisionally set at GHS 20.40 in our current model.
Downloads
IC_BIG_IDEAS_2024.01.