In developed financial markets such the Americas, Europe and Asia from October 2018 there has been a massive sell off of shares (stocks) with 5 – 20% value being whipped off their market price because of fears of the trade war between China and the United States of America.
With escalating tariffs imposed by U.S president Donald Trump on China, the world of investors show their uncertainty of the future by investing their money elsewhere like Gold as ( believed to be safe havens) and government securities for less risk and a fixed return. But this hasn’t happened to the Lusaka Securities Exchange with almost all the listed companies keeping most of the share price. Ironically, this has been a regular trait of LuSE because of lack of price volatility. One would ask the proverbial question “Is this a blessing”?
If you compare this phenomenon to the rest of the world, it’s awesome because as an investor in securities on LuSE you haven’t lost any money on your investment. Good right? Well not exactly, dividends have been a hot issue on Zambia’s leading exchange with only a hand full of listed companies able to pay dividends like Copper belt Energy Corporation (CEC), Africa Explosives Limited and Standard Chartered bank Limited.
So if investors are not making money on the price movements or dividends then your investment will lose value in the long term to inflation (“the gradual increase in prices of Goods and Services”). With inflation being a hot debate across the country with reports on the Monetary Policy Committee (MPC) decisions by Bank of Zambia trying to keep it under control this year (look out for our article on the Dutch diseases), this means money invested in the shares and later liquated will buy you less goods and services but holding other circumstances & externalities constant.
THE WINNERS AND THE LOSERS
Price volatility refers to the rate/speed of price changes and this has been an issue on the exchange market with Zambian investors trading online on global exchanges with platforms like easy markets, XM, utoro , Iq options. Looking at it on a day to day or weekly basis, the LuSE has a problem comparing it to financial markets in developed economies. Investors should understand that an exchange’s primary mission is to spread the risk and allocate surplus funds to companies that want more affordable debt compared to loans provided by investment banks with strict requirements and high interest rates.
Investors should also understand that it is a two way transaction and if someone is making money another is losing it. This is why speculators are needed in the Zambian Capital markets ergo these investors want to make profit in small time frames. Speculators provide liquidity which would solve the issue of slow execution of trades i.e. buying & selling on the exchange. As the famous saying goes “the higher the risk, the higher the profit”. So it’s good financial literacy of the public and daily participation on the exchange that helps to tackle the problem of liquidity and price volatility.
The issue of little or no dividends is a global issue. Company Executives reserve the right to pay dividends to investors with the main factor called profit after tax. Profit after tax depends on factors like the economy, strategic management, competitors and recently disruptive technologies .
The following is a snapshot example of select LuSe Companies share price movements for the past 3 years. Please note that taking into consideration buying and selling at the right times on different dates and trading strategies. It shows what the highest price, lowest price and what the current price is.
COMPANY (PRICE HIGH) (PRICE LOW) (CURRENT PRICE)
As @ trading date 29/11/18
AFRICA EXPLOSIVES (22.5) (5.13) (18.33)
CEC (2.10) (0.60) (1.50)
ZSUG (5) ( 2.70) ( 2.70)
ZANACO (1.23) (0.29) (0.85)
LAFARGE (20.99) (2.70) (4.87)
About the author
Joshua Mwangu is a Capital and Financial literacy ethusiast, Securities trader, and consultant. In 2013 he served as public relations officer for the university of Namibia Economist Society.