In brief
- Recent market discussions point to a potential debt restructuring on “risk-free” assets which could involve haircuts on coupons, principal or both
- In this report, we attempt to unpack the impact of the potential default on key sectors such as the banking, pensions and insurance industries under various scenarios
- We also try to determine what the spillover effect could mean for the fiscal position
- Overall, our simulations show that commercial banks, collective investment schemes, pension contributors and individuals are the most vulnerable group of investors, if loss events materialise
- Banks could lose nearly GHS 8bn in the worst-case scenario (i.e. 15% haircut on principal + 30% haircut on coupons) with the potential to cause a recapitalisation of the sector yet again
- Real returns on pension assets could remain negative yielding over the near-term in our base case scenario with the sector losing about GHS 1.3bn in the bear case scenario
- While local investors may be forced to adopt any port-in-a-storm approach, we recommend hedging the currency through commodity-linked exchange-traded funds in the absence of U.S. dollar liquidity
- We believe that at current levels, the market has priced in a significant amount of the negative press surrounding Ghanaian sovereign credit. An equal portfolio split between local and foreign currency bonds is likely to generate significant alpha post a bailout programme
- Furthermore, we consider the short-end of the yield curve to be riskier. Consequently, we recommend swapping any short-term maturities for medium and long-dated bonds
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