CAPITAL MARKETS AND FOREX OVERVIEW

JUNE 2016 REPORT

Union Capital Ghana

TREASURY RATE ANALYSIS

For the period ended 30 May 2016, yields on the 91- and the 182-day bills were 22.76% and 24.73%, respectively.
Rates on the 1- and 2-year notes were 23.0% and 24.0% respectively.
Over the month (June 2016) under review, whiles treasury rates on the 91-day bill inched up by 3bps, that of the 182-day bill declined by 13bps to close at 22.79% and 24.6% respectively.
Yields on the 1 and 2-year notes were unchanged.
Fixed income should continue to remain attractive in the near to mid-term but we recommend longer dated treasuries as we believe inflationary fears and economic concerns will most likely continue to linger.

YEAR-TO-DATE SUMMARY

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	91-Day	182-Day	1-Yr Note	2-Yr Note
CURRENT*	22.80%	24.60%	23.00%	24.00%
HIGH	22.90%	24.73%	24.25%	24.25%
LOW	22.51%	24.19%	23.00%	23.00%
AVERAGE	22.74%	24.57%	23.05%	23.83%
MEDIAN	22.77%	24.61%	23.00%	24.00%

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2016 HALF YEAR TREND

INFLATION RATE ANALYSIS

YEAR ON YEAR INFLATION TREND

Ghana’s year-on-year inflation declined marginally to 18.4% for May 2016; a fall of 5bps from 18.9% reported for May 2016. The decline in June was a reversal from the 0.5 percent points increase for May.
The year-on-year non-food inflation rate for June decline to 24.1% from 25% in May. Key inflationary drivers include Transport (40.3%), Education (33.3%), Housing, Water, Electricity, Gas and other fossil fuels (32.8%) and Recreation and Culture (27.4%).
The year-on-year food inflation rate for June 2016 was 8.6%, up a base point from the 8.5% recorded for May 2016. The price drivers for this category include vegetables (12.5%), oils and fats (11.2%), and fruits (10.4%).
Inflation rate for imported items increased to 27.1% in June, from the 18.5% recorded in May 2016. Inflation for locally produced items was however 1.8% higher than the imported items in June.
At the regional level, year-on-year inflation rate ranged from 13.8% in the Upper East Region to 22.4% in the Greater Accra.

MONETARY POLICY RATE

Following the Monetary Policy Committee (MPC) sitting in May 2016, the policy rate was unchanged at 26.0%. The committee viewed the risks to inflation and growth as balanced and therefore kept the rate unchanged at 26.0%.
It noted that the tight policy stance and stability on the forex alongside easing inflation expectations, and improving fundamentals should provide additional momentum to the disinflation process.
The risks in the inflation outlook noted include unanticipated upward adjustments in utilities and petroleum prices and possible second round effects from the adjustments on prices. The slow but persistent pick up in food inflation is also a concern for the MPC.
The BoG’s Real Composite Index of Economic Activity (CIEA) indicated a pick-up in economic activity. The main factors for the improved economic activity were industrial consumption of electricity, port activities, cement sales and domestic VAT.
The next MPC meeting is scheduled for July 15 – 18, 2016.

POLICY RATE TREND

GSE ANALYSIS

The monthly return was 1.7% for the period, assuming the index was purchased and held over June 2016. Year-to-date, the index has declined by 10.4%. Consequently, the GSE-CI’s decline during 2016 eased up over the past month.
The GSE-FSI, also, increased by 1.1% closing the month at 1,671.30. Year-to-date, the index has posted a decline of 13.4%.
Volatility in Ghanaian equities has continued through the second quarter of 2016. June 2016 marked a superior trading month compared to the May 2016. We believe this trend will continue through most of the current year.
49.7 million shares traded at the close of the review period. Hence, total liquidity surged by over 1569%, from the previous week.
Total market capitalization on the local bourse was GHS54.79 billion, representing a 1.0% growth compared to April closing value of GHS54.26 billion.
Total volume traded for the period was 8.78 million shares valued at GHS 35.95 million.

GSE-CI RETURN TREND

FOREX ANALYSIS

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CURRENCY	%CHANGE	%CHANGE	AVERAGE	HIGH	LOW	MEDIAN
Monthly		Year To Date
AUD	3.0%	4.6%	2.8526	3.0373	2.6399	2.8546
CFA	1.2%	3.7%	0.0066	0.0070	0.0063	0.0066
CHF	2.8%	4.8%	3.9596	4.1974	3.8027	3.9487
EUR	1.2%	4.8%	4.3393	4.6036	4.1249	4.3446
GBP	-0.4%	-6.8%	5.5736	5.9565	5.2400	5.5669
JPY	5.3%	19.7%	0.0349	0.0388	0.0320	0.0348
USD	1.8%	2.6%	3.8881	4.1600	3.7949	3.8649
YUAN	0.8%	0.5%	0.5948	0.6298	0.5759	0.5925

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Over the reporting month of June 2016, the Ghana Cedi depreciated against all currencies but the British Pound. It appreciated 0.4% against the British Pound. Year to date, the Ghana Cedi has gained 6.8% of its value against the British Pound Sterling.
For the half year, the Ghanaian Cedi continued to depreciate albeit at a slower rate as compared to 2015 half year. We anticipate the planned Eurobond issue to in the short term improve the cedi’s performance. However, ratings by credit rating agencies such as Moody, pricing concerns and likely delays, are likely to negatively affect the performance of the Cedi.
Year-to-date, the Cedi has depreciated against all the reported currencies but the Pounds Sterling with the most significant being the JPY(19.7%), CHF(4.8%), EUR(4.8%) and AUD(4.6%).

Disclaimer

Union Capital Limited has prepared this material. Opinions expressed herein are current opinions as of the date appearing in this material only and are subject to change without notice. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not prove to be true, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn.

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