In recent weeks, offshore investors have demonstrated an increasing interest in local currency (LCY) bonds on the secondary market, as reported by GCB Capital, an investment advisory firm.
According to GCB Capital’s cautious analysis in its February report, this growing offshore investor appetite could be a speculative strategy involving purchasing undervalued bonds in anticipation of price recovery amidst an improving macroeconomic outlook.
“We have noted in recent weeks improving offshore appetite for positions in LCY bonds on the secondary market. This emerging offshore investor appetite may be a speculative strategy of buying the dip,” GCB Capital said.
Traditionally dominated by sell-buybacks and repo transactions, accounting for 80 percent of market activity, the secondary bond market has experienced limited pure trades among investors, hindering effective price discovery.
Despite this, trading activity in LCY bonds is steadily increasing, with weekly turnovers averaging GH¢1.22 billion, a notable rise from the previously sluggish post-DDEP market.
The market witnessed an aggregate volume turnover of GH¢22.82 billion in the first two months of 2024, with T-bills accounting for nearly 70 percent of the total volume traded.
GCB Capital noted that two coupon payments without distress could prompt write-backs, potentially improving valuations after substantial impairments were recorded in 2022.
While acknowledging lingering risks, particularly in refinancing (2027 and 2028) and significant single-day coupon obligations, GCB Capital anticipates write-backs in 2024, leading to improved valuations and heightened activity in the secondary fixed-income market.
Despite ongoing uncertainties, GCB Capital suggests that strict fiscal discipline, coupled with IMF support, will help build on the macro gains achieved so far.
“Following the latest coupon payment and anticipated improvement in bond valuations, buying the dip could ultimately benefit fixed-income investors with a medium-to-long-term horizon,” advised GCB Capital.
Additionally, the market expects favorable outcomes from the end-of-month portfolio adjustment by pension fund managers in February 2024, particularly concerning bond exchanges.