Ghana’s Biggest Fund Shuns Stocks to Boost Debt Holdings

Ghana’s biggest mutual fund is buying debt in the West African nation for the first time since 2011 as accelerating inflation drives up Treasury bill yields.

“With the cedi falling and inflation rising, fixed income has become the safest way to cushion your funds,” Nii Ampa-Sowa, 34, who helps manage the equivalent of $232 million as chief investment officer at Databank Asset Management Services Ltd., said in an interview in the capital, Accra, yesterday. “Coupled with that is the fact that the Ghanaian stock market is not doing well.”

With stocks in West Africa’s second-biggest economy headed for the lowest returns in three years, Databank is being enticed by investments pegged to Treasury bills, which are paying the highest yields since December 2009. Inflation at a four-year high is being fueled by a 29 percent slide in the Ghanaian currency, the cedi, against the dollar this year, the most among 24 African currencies monitored by Bloomberg.

Epack, the largest mutual fund operated by Databank, put 4 percent of its 130 million cedis ($39 million) in local fixed income in the first five months of 2014, and may increase that to 7 percent by year-end, according to Ampa-Sowa.

The fund, named for the initials of its first five investors, bought three-year bonds in HFC Bank Ghana Ltd., an Accra-based bank, and fixed deposits priced off bills offered by local lenders that don’t have commercial banking licenses, he said, declining to be more specific.

Fund Returns

Inflation accelerated to 14.8 percent in May from 11 percent a year earlier, the statistics office said June 11. Rates on 91-day bills jumped 487 basis points this year to 24.09 percent at a June 27 auction, as central bank Governor Kofi Wampah increased borrowing to plug the widening budget deficit. That’s the biggest increase among 31 African nations, according to data compiled by Bloomberg.

Epack has 64 percent of its assets invested in 10 African markets, including stocks in Nigeria, Kenya and Mauritius. Twenty-five percent is in Ghanaian stocks, with the balance in cash and fixed income, Ampa-Sowa said. The fund returned 27 percent this year through May and 83 percent in 2013, the third-best performance among 34 local peers, according to the nation’s Securities and Exchange Commission.

Ghana’s 35-member (GGSECI) GSE Composite Index of stocks gained 11 percent this year after surging 79 percent last year and 24 percent in 2012. Benchmark 91-day bills returned 25 percent this year, according to data compiled by Bloomberg.

Foreigners Deterred

While local investors are buying the nation’s debt, foreigners have been deterred by the weakening currency, irrespective of rules that restrict overseas investors to participate only in auctions of securities maturing in three years or more. The cedi weakened 3.1 percent to 3.3851 per dollar as of 2:23 p.m. in Accra.

“It’s hard to paint a persuasive case to buy anything locally in fixed income,” Stuart Culverhouse, the global head of research at Exotix Partners LLP in London, said by phone June 20. “The currency is falling rather rapidly and the government doesn’t seem to have any ability to control the descent or to implement any policies that will arrest it.”

Moody’s Investors Service cut Ghana’s credit rating one step to B2 on June 28, five levels below investment grade, citing a budget gap it estimated will exceed 10 percent of gross domestic product for a third year.

Budget Deficit

The Bank of Ghana financed the government’s entire budget shortfall of 2.1 percent of GDP, or about 2 billion cedis, in the first quarter, Grace Akrofi, the institution’s head of research, said June 11 in Accra. Governor Wampah will give an update on the bank’s financing of the deficit on July 9, Johnson Asiama, head of economic analysis and the monetary policy coordinating committee, said in a June 29 response to e-mailed questions from Accra.

EDC Ghana Balanced Fund, a unit of Lome, Togo-based Ecobank Transnational Inc. (ETI), Africa’s most geographically diverse lender, is also boosting debt holdings, said Frederick Duvor, a money manager at the company, which has 21.3 million cedis in assets. Of the funds in fixed income, 22 percent is in notes maturing in more than two years, he said. The rest is in securities due in less than a year, with the bulk in 91-day bills.

Duvor predicts returns of as much as 27 percent from bonds and 20 percent from stocks. He’s buying banks and reducing stakes in manufacturing companies that depend on imports and may be hurt by the cedi’s slide.

“Once the cedi is depreciating, inflation is driven up, Treasury bill yields are forced up and that goes against the stock market,” he said. “You’re better off shifting your assets towards being heavily weighted in fixed income.”

To contact the reporter on this story: Moses Mozart Dzawu in Accra at mdzawu@bloomberg.net

To contact the editors responsible for this story: Vernon Wessels at vwessels@bloomberg.net Andres R. Martinez

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