Sunday, March 2, 2014

Poster Child for Lunacy of African Frontier Market Bullishness: Ghana

Don't worry about China or Brazil, don't worry about a "flattening out" of the commodity supercycle, "Frontier Markets" offer consumer-driven, reform-driven, sustainable growth - with no correlation to BRICs, EMs, or any global equities!  This was the story among the smart money endowment and foundation investors a few years ago.  This was always rubbish and is becoming increasingly obvious to the poor folks who fell for it. 

Now you might say, "oh Ghana, there just one of those tiny African countries, there are so many of them, some of them will always be struggling" but Ghana's economy is bigger than those of Uganda and Kenya and it was important enough for Emerging Market Debt investors to buy $750 million of USD bonds last year at the astonishing rate of 8% (thus demonstrating the close contest between EME and EMD investors for who is the most gullible). 

Well Ghana has fallen on hard times.  This is a horrible thing for it's people and the suffering of institutional investors in Ghana is nothing to that of the Ghanians.  But... these well paid, so called "smart money" investors are learning that Africa is absolutely connected to the global economy and to global financial markets.  The fall in commodity prices (gold and cocoa in this case) has had a crushing effect.  Twin current account and budget deficits have gapped out and the currency is plummeting.  Inflation is in double-digits and interest rates are almost 20%.  Here's all the gory details:

Why is Ghana's currency collapsing?

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