Why This Matters
Macro trading is the discipline of translating economic views into portfolio positions. If you believe oil prices will rise, how do you profit? If you think the BNA will cut rates, which assets benefit? Institutional investors and sophisticated individuals use macro analysis to generate returns independent of individual stock or bond selection. In Angola, where the economy is heavily influenced by a few key variables, macro trading can be particularly powerful.
Angola’s Macro Variable Map
Five variables drive the vast majority of Angolan asset returns:
1. Oil Prices (Brent Crude)
Transmission: Oil → Government revenue → Fiscal balance → Kwanza strength → Asset prices
If oil rises: Government revenues increase, fiscal pressure eases, Kwanza stabilizes or strengthens, sovereign credit improves, bank profitability rises (less economic stress on borrowers), bond yields may tighten (improved credit).
If oil falls: Reverse of all the above. Government cuts spending, Kwanza weakens, inflation rises from import costs, banks face higher NPLs.
2. BNA Interest Rate
Transmission: BNA rate → All domestic interest rates → Bond yields, deposit rates, borrowing costs
If BNA cuts rates: Existing bond prices rise (inverse relationship), deposit rates fall, cheaper borrowing stimulates economy, equities may benefit from lower discount rates.
If BNA raises rates: Bond prices fall, deposit rates rise, borrowing becomes more expensive, potential drag on equity valuations.
3. Inflation
Transmission: Inflation → Real returns, consumer spending, BNA policy response
Falling inflation: Positive for real returns on existing bonds, may prompt BNA rate cuts, supports consumer spending. Rising inflation: Negative for real returns, may prompt BNA rate hikes, reduces consumer purchasing power.
4. Exchange Rate (USD/AOA)
Transmission: Kwanza moves → Import prices → Inflation → USD-indexed asset values
Kwanza weakening: USD-indexed bonds gain in Kwanza terms, import inflation rises, Kwanza bond real returns worsen. Kwanza strengthening: Reverse.
5. Global Risk Appetite
Transmission: Global sentiment → Capital flows to/from frontier markets → Angola sovereign spreads
When global investors are risk-on (optimistic), money flows into emerging and frontier markets, compressing sovereign yield spreads. When risk-off, capital flees, spreads widen.
Macro Trade Expressions
For each macro view, there are corresponding portfolio actions:
| Macro View | Bond Position | Currency | Equity |
|---|---|---|---|
| Oil rising | Long Kwanza OTs, extend duration | Overweight Kwanza | Overweight bank stocks |
| Oil falling | Short duration, long USD bonds | Overweight USD | Underweight equities |
| BNA cutting rates | Extend duration aggressively | Neutral | Overweight equities |
| BNA raising rates | Shorten duration | Overweight Kwanza deposits | Underweight equities |
| Inflation falling | Long Kwanza OTs | Mild Kwanza overweight | Neutral to positive |
| Inflation rising | Short-duration, USD-indexed | Overweight USD | Defensive |
Worked Example: Macro Trade — “Oil Recovery”
View: Oil prices will rise from $75 to $90 over the next 12 months as OPEC+ maintains production cuts and Chinese demand recovers.
Transmission chain:
- Higher oil → improved government revenues (+Kz 3T fiscal improvement)
- Stronger fiscal → potential credit upgrade from Moody’s/Fitch
- Reduced depreciation pressure on Kwanza (BNA can build reserves)
- Lower inflation trajectory (less import cost pressure)
- BNA may begin rate cutting cycle
Portfolio expression:
- Extend bond duration: Move from 3-year to 7-year OTs to capture more price appreciation if/when yields fall. Duration increase from 2.5 to 4.5 years amplifies the gain.
- Overweight Kwanza vs. USD: Shift from 65/35 to 75/25 Kwanza/USD. Higher Kwanza weight captures the yield premium during stable/appreciating Kwanza.
- Increase equity allocation: From 25% to 35%. Banks benefit most from oil recovery (better credit quality, economic activity). Add BAI and BFA.
If correct: Oil rises to $90. Kwanza appreciates 5%. BNA cuts rates 200bp. Bond prices rise 8-10%, equities rise 15-25%. Portfolio return: approximately 28-32%.
If wrong: Oil falls to $55. All of the above reverses. Duration extension amplifies bond losses (-5 to -8%). Kwanza overweight hurts as currency depreciates. Equities fall 15-20%. Portfolio loss: approximately -12 to -18%.
Risk management: Size the trade proportionally — do not go all-in on any macro view. Maintain 20% in USD-indexed bonds as a hedge even in the bullish scenario. Set a stop-loss: if oil breaks below $65, reduce to defensive positioning.
Key Takeaways
- Five macro variables dominate Angola’s asset returns: oil, BNA rate, inflation, exchange rate, global risk appetite
- Each macro view has a corresponding portfolio expression across bonds, currency, and equities
- Oil prices are the single most important macro variable for Angola
- BNA rate decisions directly affect bond prices (inverse) and indirectly affect equities
- Macro trading combines top-down economic analysis with disciplined portfolio management
- Always maintain hedges — no macro forecast is certain, and being wrong with concentrated positions is catastrophic
Common Mistakes
Single-variable thinking — Oil rises but BNA unexpectedly raises rates. The positive oil effect on bonds is offset by the rate hike. Always consider multiple variables simultaneously.
Ignoring the timing — Being right about the direction but wrong about the timing can still lose money. Markets can stay irrational longer than you can stay solvent.
Excessive conviction — The strongest macro convictions should still result in modest portfolio tilts (5-10% shifts), not wholesale restructuring.
What’s Next
Currency is central to macro trading in Angola. The next lesson covers advanced FX hedging techniques — beyond the basic Kwanza/USD allocation covered in Level 2.
Next Lesson: Advanced FX Hedging — Institutional Currency Management
Track all macro indicators on the Economy Dashboard. Monitor currency on the FX Dashboard and bond yields on the Bond Dashboard.