Zambia continues to lead its peers in Africa after the Lusaka Securities Exchange All Share Index rebounded to a 3 point whisker level below its all time high at 7,006.3. This resilient stock performance by stocks surpasses that of the bond market. Stock prices in general are trading 19.19% stronger than bonds which close to 400 basis point below in dollarized terms. Supporting the LASI rally are the following stocks Zambeef (ISIN:ZM0000000201) , Zanaco (ISIN:ZM0000000250), Copperbelt Energy Corporation (ISIN:ZM0000000136) and Zambia Sugar (ISIN:ZM0000000052) on account of risk appetite seeping back into the Zambian market post pandemic. Another strong driver of strong performance is the policy shifts and political will to drive private sector growth that has scaled confidence and sentiment in Africa’s red metal hotspot Zambia.
Deeper analysis into the manufacturing gauge reveals that the foreign exchange rate rally has to a large extent eased input costs despite selling prices weighed by petroleum prices. Seasonally adjusted for fuel prices purchasing managers index point to stronger business confidence rebound. Global demand for sugar for ethanol as a substitute for fossil fuel as supply concerns weigh has been a driver for boosted exports prospects in the labyrinth of dislocated global food markets keeping soft commodity prices high. This has remained a motivating factor for export agribusiness like Zambia Sugar. Zambeef efforts to double output of its wheat asset is evident in the market financing developments with the international financing corporation extending $35 million in long term credit extension to support the regional ambition to cushion the wheat deficits.
Despite a 26% tumble in the price of red metal on the London Metal Exchange, Zambia is geared up for increased production and exploration investments. With set targets of 3 million metric tons and actualizing investments in mining assets such as the First Quantum Minerals, demand for mining spell greater energy prospects and as such Copperbelt Energy Corporation is already taking a positive cue. Zanaco’s breaking the barriers in a FY21 K1billion earnings after tax gave its shareholders value for money and as Zambia’s largest bank by asset size expectations from the market remain sanguinely high, this has made the banking stock the most attractive FI stock to buy. The banks 1H22 strong performance is already priced into shareholders appetite for the stock. Homogenous across these mega stocks is economic recovery mostly hinged around the Southern African nations improved sovereign outlook.
Players generally took profits in April causing a temporal sell – off but buyers are back in search of more gains from these agribusiness, banking and energy stocks. Arguably, while stock performance is underpinned by stronger growth prospects, lower yields on the short end of the Kwacha demand curve have made trading stocks more attractive.
Compared to the global S&P500 Zambian assets are trading at premiums above in real terms.
The Kwacha Arbitrageur