Ghana Bond to Give Africa’s Best Gain

Ghana’s three-year government bonds offer prospects of the best returns in sub-Saharan Africa as yields on the debt outweigh possible currency declines over the next year, according to Standard Chartered Plc.

After-tax yields of 19.6 percent will counter a likely 7.8 percent depreciation in Ghana’s cedi over the next 12 months, giving investors a total net return of 11.8 percent, Robert Minikin, senior currency strategist at Standard Chartered Bank in London, wrote in a research note today. Ghana’s cedi is likely to weaken to 1.56 per dollar by end-September next year, from about 1.44 today, Minikin predicts.

“Yields on local government bonds will significantly outweigh any prospective foreign-exchange losses over a one-year time horizon,” Minikin said separately in a telephone interview. “There’s a substantial yield pickup available.”

African currencies from Nigeria’s naira to Angola’s kwanza have slumped over the past year as the global recession eroded demand for commodities and curbed foreign earnings for so-called frontier-market countries on the continent. Ghana’s cedi has lost 11.8 percent this year against the dollar.

Some African countries, including Uganda and Nigeria, compare favorably with Ghana in terms of political and economic conditions that might cause the national currency to decline.

“It is striking that the broader Ghana picture dilutes the superficial attractiveness” of holding long positions in the cedi, the note said. “Notably, reserve levels are rather low” while “the state of public finances has been highly erratic,” it said. A long position is one in which an investor buys a security before selling because of an expected price increase.

Nigeria, Uganda

In July, the International Monetary Fund agreed to lend the West African nation $1.02 billion to support the country’s balance of payments and help shore up its depreciating currency. Ghana currently has about two months of import cover following the loan from the IMF. It is aiming to cut its budget deficit to 9.4 percent of gross domestic product this year from 24.2 percent last year.

Nigerian two-year government debt is the next-best investment in the region with total returns of 7.8 percent projected over 12 months, according to Minikin. Ugandan three- year bonds will return 7.3 percent followed by 5.2 percent for those of Zambia, Minikin predicts.

To contact the reporter on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net