The cedi may sink to a record and a bond rally may stall if Ghana’s presidential election fails to yield a clear winner.
While President John Mahama and rival Nana Akufo-Addo have both pledged to speed up economic growth and implement an International Monetary Fund program if they win polls, a contested result may jeopardize that continuity of policy. Observers have called the race too tight to call, evoking memories of 2012, when an indecisive election led to a nine-month court battle before Mahama was handed victory.
“The big risk in the election is that you get a contested result, we go back into the court, things drag on, the government turns away from the IMF program,” said Kevin Daly, who helps oversee about $11 billion of emerging-market assets at Aberdeen Asset Management Plc in London. “The downside risk comes more from not who wins, but how they win.”
The cedi weakened 4.2 percent to 4.3150 per U.S. dollar on Wednesday. The nation’s Eurobonds rose for a third day, sending yields nine basis points lower to 9.23 percent. The Ghana Stock Exchange Composite Index was little changed. The currency is heading for a 12 percent annual loss, while bond yields are down almost 3 percentage points this year.
The cedi may fall to as low as 4.60 and yields could rise to 9.5 percent by the end of the first quarter if a close election means a court battle to determine the winner, said Gaimin Nonyane, a London-based senior macroeconomic specialist at Ecobank Transnational Inc.
Investors are betting that opposition leader Akufo-Addo would not only continue the status quo in economic policy but also be slightly more market-friendly than the incumbent Mahama.