Analyst - PAGES

More documents

Recommendations

Info

Tuesday, September 29, 2020SA Rand among best postCOVID emerging marketcurrencies — Goldman SachsLEadING globalinvestment BankGoldman Sachs hasmarked out theMexican Peso as its topemerging market (EM) currencypick “once the dust settles” fromthe coronavirus pandemic.In a note last Thursday, Goldmanstrategists suggested that while it may betoo early to engage with high-yield EM bets,with risks still prevalent and the dollar onthe move, it is not too early to startthinking systematically aboutopportunities once the crisis subsides.attractive among “high cyclical beta,high carry longs.” It was closely followed bythe South african rand (ZaR) and Russianruble (RUB).Co-Head of Global Foreign ExchangeKamakshya Trivedi and Head of EM CrossassetResearch Caesar Maasry, along with ateam of strategists, identified the peso asthe most potentially strong currency in theaftermath of COVId 19.a currency carry trade is whereinvestors borrow in a high-yieldingcurrency to fund a trade with a low-yieldingcurrency, aiming to capture the differencebetween the two rates. Cyclical beta is thecurrency’s sensitivity to the broadereconomic cycle and market returns.“The peso remains our top choice inthis group: while it appears to have less‘room to run’ than some other EM highyielders,this week’s sell-off means thatUSd/MXN still stands well over 10 per centhigher than its pre-corona crisis level ofroughly 19,” Trivedi and Maasry said in thenote.“From a medium-run perspective, thepeso’s combination of currency-supportivemacro fundamentals and still-high yieldsmake it an attractive choice.”The USd/MXN was hovering at around22.2 last Friday morning.Relative to the peso, Goldman analystssuggested that the randand ruble both havemore room to run, withZaR “deeplyundervalued” and RUBhaving retraced less ofits year-to-date sell-off.“Given significantdomestic risks,however, includingSouth africa’s Octobermid-term budgetannouncement for therand, and acombination of stillvolatilepoliticalheadwinds andslowly-fadingmacroeconomictailwinds for the ruble, the keyquestion for each currency is whether highglobal betas can (eventually) trumpdomestic headwinds,” they said.However, Goldman is optimistic aboutthis prospect, as the rand is sensitive toChinese data, which has been suggesting acontinued recovery.• South African Rand bank noteTrivedi and Maasry suggested that withthe US election potentially keeping US-Russia headlines in the spotlight throughthe first half of the fourth quarter, the“potential for cyclical upside is arguablyhigher for the rand.”G7 wants extension of G20 bilateral debt freezeG7 FINaNCE Ministershave reaffirmed theircommitment towardsimplementing anofficial bilateral debtrelief for the world'spoorest countries amidthe Covid-19 pandemic."Covid-19 hasexacerbated existingdebt vulnerabilities inmany low-incomecountries, highlightingthe importance of debtsustainability andtransparency to longtermfinancing fordevelopment," theMinisters said in a jointstatement released bythe US Treasurydepartment lastWednesday, newsagency IaNS reported."We are committedto implementing the debtService Suspension Initiativeagreed by the G20 and the ParisClub, by suspending officialbilateral debt payments for thepoorest countries to year-end2020 and possibly longer,providing those countries fiscalspace to fund social, health, andother measures to respond tothe pandemic."Given the importance ofprivate financing forsustainable development, the G7Ministers welcomed theleadership by the Institute ofInternational Finance (IIF) incoordinating private sectorparticipation, and look forwardto follow-up, Xinhua newsagency quoted the statement as• The G7 countries’ leaderssaying.The Ministers also said theylook to theinternationalfinancialinstitutions to step up efforts toprovide technical assistance toreduce public debtvulnerabilities, strengthen debtmanagement capacity, andenhance debt reportingpractices."I welcome the continuedstrong support among the G7 forhelping low-income countriesaddress the impacts of Covid-19,including through participationin the debt Service SuspensionInitiative," US TreasurySecretary Steven Mnuchin saidin a separate statement.He added that the Ministersagreed to convene on a regularbasis to work together oncritical economic issues torestore their respectiveeconomies."I look forward to makingsignificant progress to reviewwith the G20 Ministers at themeeting in July," he said.In april, G20 FinanceMinisters and central bankersagreed to "support a time-boundsuspension of debt servicepayments for the poorestcountries that requestforbearance" following ateleconference meeting.
Tuesday, September 29, 2020Economy oncourse forrebound• Continued from front PageThe latest Composite Index ofEconomic activity recorded yearon year growth of 3.6 per centover the 12 months to July, acomplete reversal of the record10.6 per cent contractionrecorded by the index for the 12months up to May.This indicates that actualGross domestic Product growthwill be positive for the period aswell.The BoG ‘s CIEa measureschanges in the quantum ofeconomic activity whileeconomic growth, as measuredby the Ghana Statistical Servicetracks changes in the value ofthe economy as measured byGdP. While the two are by nomeans the same, they tend tomove in the same direction.The first warning of the 3.2per cent contraction in GdP forthe 2nd quarter came from the10.6 per cent contraction in theCIEa up to May.according to the BoG however,its survey shows that consumerspending, industrialconsumption of electricity andconstruction activities have allreached pre-lock down levels,while tourist arrivals and portand harbor activity are graduallyedging upwards.One the downside however,imports, exports and privatesector contributions to socialsecurity remain below prelock down levels.Importantly, the BoG’sMonetary Policy Committeechose to retain thebenchmark Monetary PolicyRate at 14.50 per cent despitethe fact that inflationremains above the targetband of eight percent plus orminus two percent (inflationfor august was 10.5 per cent)in order to support economicgrowth through relativelycheap and accessible creditfor private enterprise.The economic rebound isbeing underpinned byimproving confidence fromboth businesses andconsumers according to thelatest surveys of both“The economicrebound is beingunderpinned byimproving confidencefrom both businessesand consumersaccording to thelatest surveys of botheconomic segmentsby the central bank.economic segments by thecentral bank. The latestconsumer confidence surveyindicates that consumerconfidence is bouncing backstrongly and is currently abovepre lock down levels.Business confidence alsoincreased but is yet to match prelock down levels. However about95 per cent of businessessurveyed showed strongoptimism, reflecting theimproving macroeconomiccondition, stability in theexchange rate, lower input prices,moderation in lending rates andpositive industry prospects.The BoG also points to otherindicators of an economicrecovery. according to dr Ernestaddison, the BoG ‘s Governor:With the exception of workplaceclusters, which still remainedbelow baseline, all otherindicators embodied in thegoogle mobility data –commuting and travelling, visitsto supermarkets andpharmacies, and residentialactivity have moved abovebaseline.”Furthermore, the GhanaPurchasing Managers index,which gauges the rate ofinventory accumulation bymanagers of private sector firmsand measures dynamics ineconomic activity, points to asteady rise in business activitysince april 2020.Instructively, the BoG nowreckons that Ghana can achieveGdP growth for 2020 as a wholeof between 2.0 percent and 2.5percent. This is more than doublethe 0.9 percent growth projectedby the Ministry of Finance inJuly.dr addison admits that theadverse effects of COVId 19 mayhave been overestimated byeconomic analysts, policymakers and business regulators.• Dr Ernest Addison, the Governor of the Bank of GhanaGovt grappleswith fiscal deficitpressuresGOVERNMENT recorded afiscal deficit of 7.4 per centof Gross domestic Productfor the first seven months of2020 ie January to July.This is marginallyhigher than the 7.2 per centtarget for the deficit overthis period and suggeststhat even the record highfiscal deficit target for thisyear, forced upongovernment by theextraordinarycircumstances and impactof COVId 19, may be hard toachieve.It is instructive that thehigher than targeted fiscaldeficit was the result ofhigher than budgetedexpenditure rather thanrevenue shortfalls.Between January andJuly this year, total revenueand grants amounted toGHc27.7 billion which ishigher than the GHc26.8billion expected over theperiod.However, total publicexpenditure and arrearsclearance amounted toGHc56.2 billion, which ishigher than the GHJc53.3billion targeted.Consequently, theprimary balance deficit of3.7 percent was significantlyhigher than the 3.4 percentdeficit targeted for the firstseven months of the year.The out turn isconfirming the fears ofsome economists and publicpolicy commentators thateven the record high fiscaldeficit targeted for 2020, inorder to cope with theunprecedented debilitatingeffects of COVId 19 will notbe achieved.This year government isaiming for an 11.4 per centfiscal deficit - more thantwice the temporarilysuspended ceiling on thedeficit of five percent of GdP– because of the inevitableeffects of COVId 19 onpublic revenues and theneed to increaseexpenditures drastically tomeet health costs andprovide economic stimulusfor the economy in thewake of necessary socioeconomicrestrictionsimposed to curb the spreadof the viral infection.However public policyanalysts had warned thatthe unusual circumstanceswere also givinggovernment an excuse toengage in extra budgetary,general election relatedspending; in short spendingto woo voters disguised associal interventions toameliorate the effects ofCOVId 19 on vulnerablesegments of the populace.They warn that all sortsof vested interests have seenthe opportunity to squeezemoney out of government,who they believe will accedebecause of the peculiarcircumstances.For instance last week –in response to loud protestsand election threats fromaffected members of theelectorate - governmentaccepted to replace the zerointerest five year bondissued to depositors ofliquidated banks and otherdeposit taking institutionswith three year bonds thathave a coupon rate of 19 percent per annum and arediscountable on thesecondary market.Questions are beingasked as to where theGHc3.5 billionin unbudgeted funds usedfor this came from.Worries are increasingthat these circumstanceswill worsen further ahead ofthe december polls.already, Ghana’s publicdebt has risen to 68.3 percent of GdP – GHc263 billion– as at the end of July, from62.4 per cent of GdP(GHc208.2 billion) as at theend of december 2019. If theoff balance sheet debtresulting from financialsector clean up and legacyenergy sector debts areadded on – as theInternational MonetaryFund suggests – thenGhana’s public debt wouldgo above the 70 percent ofGdP upper limit for debtsustainability.Instructively the BoGsays the size of the fiscaldeficit is the major reasonwhy it ios not increasing itsmonetary easing to supportflagging economic growthdue to COVId 19.
Page 1: BUSINESS MARKET RATESUS$ 1 - GH¢5.
Page 5 and 6: Tuesday, September 29, 2020ACEP opp
Page 7 and 8: Tuesday, September 29, 2020procurem
Page 9 and 10: Tuesday, September 29, 2020Commerce
Page 11 and 12: Tuesday, September 29, 2020PAGE 11G

Analyst - PAGES

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?