Markets in Africa’s second largest copper producer Zambia recorded a rally across the spectrum of assets ranging from bonds to alternative assets. According to ZATU Financial Consultants Zambia’ bonds, stocks, and alternative assets rallied revealing a multifaceted ‘Everything Rally’ amidst endogenous and exogenous economic shifts.
The asset market in 2023 continue to exude resilience despite the foreign exchange fluctuations fueled by kwacha depreciation, driven by specific stocks, a historic gold surge, and revived cryptocurrency momentum. This offered a plethora of opportunities amidst volatility.
Zambia continues to bask in optimism for bullish copper prices and hopes of leaps in private external debt restructure negotiations while the global environment has kept players trade cautiously as they navigate 2024 in the labyrinth of market fluctuations and ongoing geopolitical risk negotiations to mitigate impacts of the the Israeli – Hamas and Russo – Ukraine wars.
MARKET ANALYSIS 2023 IN REVIEW
As the 2023 fiscal year closes the Southern African nation experienced a notable cross-asset rally, marking a transition from stagflation to an inflationary expansion. Across mainstream markets, key indices were in surge mode to include the secondary government bond index that rose 38% as the stock market index soared 47.6% while the dollar ascended 42.2%. Gold in kwacha terms earned top performer with a remarkable 61.3% appreciation.
BOND MARKET RALLY
Versus a 14.06% rally in FY22 the kwacha bond index expanded 38.0% in FY23. Despite progress in Official Creditor Committee (OCC) agreements for bilateral debt treatment, derailments in dollar bondholder negotiations combined with aggressive rate hikes in developed nations, sustained elevated base rates and widening country risk premia, efforts to lower rates through 5% restrictions on offshore positions faced challenges due to persistently high sovereign risk sentiment and inflationary pressures. While composite secondary yields declined by 2.17%, holding at 21.54% on average signaling potential resolution in creditor conflicts, market confidence remains cautious due to uncertainty.
STOCK MARKET SURGE
The Zambian bourse the Lusaka Securities Exchange (LuSE) saw its third consecutive rally, reaching historic highs with the All Share Index (ALSI) closing above 10,000 for the first time and peaking at 10,828.18. Notably, market growth was largely concentrated in Copperbelt Energy Corporation – CEC (+87.6%), Illovo’s Zambia Sugar (+94.4%) and Airtel Networks (+152%) driving 85% of the market capitalizations expansion. Dividend-rich companies dominated market movements, rewarding shareholders and influencing market dynamics. The ALSI is up 47.6% in FY23 compared to 20% in FY22.
MARKET CAPITALIZATION AND ECONOMIC RESILIENCE
The stock market capitalization, excluding Shoprite Holdings, closed at a record K53 billion ($2 billion), a 43% surge within the year and an impressive 108% increase since 2018. Despite persistent hurdles in foreign exchange markets, inflation and interest rates, the nation’s economic growth buoyed the stock market, maintaining its upward trajectory even amidst a weak exchange rate. Zambian stocks continue to take a positive cue from improved mining, energy, telecommunications and petroleum demand outlooks. Other sectors that have performed stellar including banking and construction.
ENDO/EXOGENOUS DOLLAR DYNAMICS
Despite a resilient 5.1% economic growth in 3Q23 and favorable commodity market shifts, the kwacha faced significant depreciation of 50.52% marking the third worst performing year since 2001. High-risk perceptions, weak copper output on operational hurdles and substantial consumer goods imports exerted immense pressure on the exchange rate. The nation’s path to recovery hinges on import substitution policies, mining sector resurgence and conclusive debt reorganization which then fosters hope for stability and potential recovery in 2024. As measured by dollar index against a basket of six major currencies DXY the green buck was 42.2% firmer in 2023 compared to 8.41% in 2022.
COMMODITIES AND ALTERNATIVE ASSET MARKETS
Bullion in kwacha terms did emerge as top-performer with a 61.3% sprint amid global uncertainties, serving as a wealth insurance asset for investors. Gold and dollar treasuries are generally preferred safe haven assets in periods of uncertainty. Furthermore, cryptocurrency traders did experience exceptional gains as Bitcoin and Ethereum in kwacha rebounded significantly, signaling a potential end to the crypto winter. While Bitcoin rallied 91% and Ethereum surged 64% in the final quarter alone, investors are advised to maintain a balanced portfolio and view cryptocurrency as a hedge against market downturns, limiting exposure to around 5.0%.
OUTLOOK
As we delve into the 2024 outlook, the resilience witnessed across various asset classes amidst economic gyrations does provide optimism for recovery. Prospects of stabilized copper prices, fertilizer and other agribusiness input self sustainability and positive sentiments from debt negotiations does offer a ray of potential economic takeoff in the year 2024. ZATU financial consultant do recommend vigilance as global market sentiments and ongoing debt restructure discussions continue to influence and shape market dynamics.
By Munyumba Mutwale
