They say amidst every turbulence, silverlinings do exist. Despite a chaotic global environment characterized by excessive inflation, soft commodity price dislocations and monetary policy tightening whose effects extend to emerging markets, one darling safe haven hotspot market that continues to reflect resilience in asset performance is Zambia. Africa’s second largest copper producer and first bond defaulter in the COVID19 pandemic era is defying the odds by reflecting robust growth in its investment market. This stellar performance and resilience is second to none.
Over the last one year the Southern African nation has seen subsiding political risks, sentiment boost with greater political will in addressing the sovereign vulnerabilities morphing into the worlds favorite capital destination. Most recently, the International Monetary Fund board approved $1.3 billion in extended credit facility financial support aimed at restoring fiscal fitness following years of excessive debt and suppressed macros ranging from growth to inflation.
LASI outperforming an S&P 500
The Zambian equities market closed third quarter of the year 21.7% firmer year to date with a 7.2% rally quarter on quarter. This bullish streak was catalyzed by agribusiness stock Zambeef backed by 66% of stocks on a positive trajectory both in the quarter and on a year to date basis. Agribusiness stocks have fairly geared themselves in response to the food crisis posed by the Russo – Ukrainian crisis. This has seen agribusinesses double agriculture assets as they seek to leverage off higher soft commodity prices and supply regional markets in deficit.
In comparison to US markets that have been bearish, the Lusaka Securities Exchange All Share Index has strengthened 28% YTD in dollar terms of which 17% is attributed to third quarter. The S&P500 slid 25% as major African equities markets wane in negative territory from currency volatility and negative risk asset performance.
The strongest sovereign bond index
Zambia’s local currency bonds have remained very attractive and may still be for another year. These sovereign bonds are 8.9% firmer year to date in local currency terms and rose 4.6% in 3Q22. Dollarized, the sovereign bond index is 15% firmer for the year with the last quarter recording an 11% rally. Bonds are both attractive in real terms adjusted for inflation which is fairly contained making premiums healthy for local investors. For offshores, these yields could not have been at a better time as foreign currency stability persists on the back of improved macroeconomic fundamentals.
The red metal producers outlooks evidenced by steepening Kwacha demand curve, positive manufacturing gauge readings, currency stability and single digit inflation, is on a rebound trajectory. This pattern in the equities market seem to be reflecting a 2001 – 2014 capital markets performance.
However, systemically across the world, recessionary fears are the biggest downside to the Southern African nations growth momentum. This could trim gains posted in the short term but should be followed by reflation and rallying markets thereafter as the domestic fundamentals seem robust.
The copper producers economy is set to expand 3.6% in 2022 and 4.1% in 2023 as its Minfin reigns in on its current debt position. Finance Minister Dr. Situmbeko Musokotwane delivered a K167.3 billion fiscal budget that will seek to catapult Zambias full production possibilities.
The Kwacha Arbitrageur
