8 February 2021

A passing blizzard or a long winter?

In brief

  • The rapid spread of COVID-19 in early 2020 caught most of the world by surprise and turned the global economy upside down.
  • The pandemic has plunged the global economy into the deepest recession since World War II and triggered a massive response in terms of fiscal and monetary stimulus.
  • A vaccine driven recovery is expected to result in a V-shaped global economic growth, but the case might not be same for Ghana.
  • Given that Ghana is likely to depend on the generosity of the COVAX programme, uncertainty remains the ethos of 2021.
  • We expect the distortion in macroeconomic fundamentals following the barrage of policy responses meant to curb the impact of the pandemic to weigh heavily on Ghana’s economic growth in the medium term.
  • In effect, the seemingly awkward relationship between markets and economic reality is not expected to change significantly in 2021.
  • We believe yields will remain depressed in 1Q2021 and then re-rate in 2Q2021 based on two likely scenarios; more positive vaccine news and a confluence of factors resulting from money supply and private sector credit resuming their traditional positive relationship.
  • For the credit market, we expect the spread between risk-free rates and private credit of similar tenors to widen particularly for primary issuances as the credit quality of issuers deteriorate amid a weak macroeconomic backdrop. Secondary trading is anticipated to remain largely irrational as liquidity influences the hunt for yield.
  • For equities, our models suggest a pick up in earnings momentum as such, we have adopted a pro-risk tilt with a preference for consumer cyclicals and defensive oriented stocks in the telecommunication sector. We are uncertain if markets have bottomed yet, but we see significant discounts and thus we are being opportunistic and buying stocks.