Wealth Manager Stares Down Ghana Stock Losses, Bets on Rallyby
Databank bets on equity rally of as much as 30% in 2016
Economic growth may accelerate from slowest pace in 20 years
For most money managers invested in a nation’s stock market, a combination of the slowest economic growth in two decades, a weakening currency and the highest borrowing costs in more than 12 years would have them heading for the exits.
Not Ghana’s Databank Group Ltd., which manages about $260 million for private individuals from its offices in the capital, Accra. Staring at the prospect of the first decline in four years for the 35-member Ghana Stock Exchange Composite Index, Databank is sitting tight, betting that a forthcoming general election will reignite government spending, encouraging banks to increase lending to consumers into 2016.
“We’re optimistic about growth next year,” Doris Ahiati, head of research at the money manager, said in an interview in Accra. “We see banks giving out more loans to companies than this year and higher spending by government, all driving gross domestic product."
Databank’s steadfastness is a vote of confidence in the administration of President John Dramani Mahama’s efforts to reignite an economy that has suffered from falling prices for its cocoa and crude exports. With inflation set to slow, the central bank will have room to cut interest rates in the second half of next year, while a series of initial public offerings, rights issues and share sales by banks to boost capital levels will also spur interest in equities, Ahiati said.
The index, which has dropped 12 percent this year, may gain as much as 30 percent in 2016, she said. Databank has 7 percent of its total assets outside of Ghana in markets from Egypt to Malawi.
Inflation will probably slow to 13.5 percent by the end of 2016, Ahiati said, compared with 17.4 percent in September. That will allow yields on 91-day Treasury bills, used by banks in setting their lending rates, to decline to an almost three-year low of 22 percent by December next year, and compared with 25.3 percent at the last auction. The budget deficit narrowed to 4.7 percent of gross domestic product in the first eight months of the year against a 7.3 percent goal for the entire year.
The government of the world’s second-largest cocoa producer, which began producing oil for exports from its Jubilee oil field in December 2010, predicts growth will accelerate to 5.8 percent in 2016 from an estimated 3.5 percent this year, supported by crude output from newly discovered fields in mid-2016.
Ecobank Development Corp., one of Ghana’s biggest brokerages, isn’t as optimistic, seeing gains of no more than 6 percent in 2016 for equities, with the currency looming as a threat. After weakening 26 percent against the dollar in the first half, the cedi rallied 15 percent since the end of June.
“Market performance is going to be mixed,” Randy Mensah, head of equity trading at EDC, said by phone on Tuesday from Accra. “Currency issues are still going to play out into the second quarter. In addition to the fact that 2016 is an election year and it’s uncertain whether government will stick to its deficit target, I foresee investors staying on the sidelines.”
The IPO of Fidelity Bank Ltd., a closely held Ghanaian bank, and possible listing in January of state-owned Agricultural Development Bank Ltd., which has been delayed since June, will help to spur equity market gains, Ahiati said.
Ghana Oil Co., Total Petroleum Ghana Ltd., Unilever Ghana Ltd. and Guinness Ghana Breweries Ltd. are all expected to sell shares to existing investors to raise additional capital for expansion, she said. Most of Ghana’s 28 banks may also raise cash by selling stock if the central bank enforces new minimum capital rules, Ahiati said.
Databank’s top picks for 2016 are Ghana Oil, Fan Milk Ltd.and Unilever as faster growth translates into improved consumer spending, while lenders such as CAL Bank Ltd., GCB Bank Ltd. and Ecobank Ghana Ltd. may benefit as bad loan charges improve. PBC Ltd., the biggest buyer of cocoa beans from farmers, and Benso Oil Palm Plantation Ltd. may lead losers on a poor cocoa production outlook and lower prices for palm, she said. The market’s index declined 1.5 percent to 1,984.57 at the 3 p.m. close in Accra.
“Though next year is an election year and generally foreign investors would be cautious because of possible electoral violence, prices on many stocks have fallen to below their fair values,” Ahiati said. “You can expect the smart investors to get in at this point.”