As the third quarter of 2023 unfolded, the dynamic landscape of the capital markets was marked by significant shifts, mirroring the evolving economic fundamentals. The period witnessed notable developments, including an upswing in interest rates, indicating the market’s response to the prevailing economic dynamics. One of the prominent areas displaying vitality was the Secondary Bond Market, where increased investor participation underscored growing market confidence.
Amidst this positive momentum, there was a surge in the number of entities expressing interest in the capital market, evident from the rise in license applications. However, a lingering challenge persisted – the number of listed entities remained stagnant, posing a crucial area for potential growth and diversification.
Yet, amidst these encouraging trends, the market was not without its challenges. The global economic landscape presented downside risks, including the looming threat of a slowdown in global growth, tightened global financial conditions, and the impact of adverse weather conditions due to climate change. Additionally, geopolitical tensions, notably the Russia-Ukraine war and ongoing instabilities in the Middle East, contributed to elevated energy and food prices, further intensifying market uncertainties.
Throughout the quarter, the local currency, the Kwacha, experienced fluctuations. After appreciating by 4.8 percent against the US dollar in the second quarter, it saw a depreciation of 11.0 percent, reaching K19.48 between June and August 22, 2023. By the end of September 2023, the Kwacha further depreciated to 21.04 ZMW, reflecting the market’s challenges in maintaining a stable supply of foreign exchange.
One of the significant factors impacting market sentiments was the delay in Zambia’s debt restructuring with creditors. This delay had a cascading effect, influencing investor perceptions on the country’s credit rating and hindering the anticipated flow of funds. The market recorded a net outflow of United States Dollars 44,686 (940,193.44 ZMW) on the exchange by the close of September 2023, as reported by the Lusaka Securities Exchange.
In July, the IMF Executive Board’s completion of the first review under the 38-month Extended Credit Facility (ECF) provided Zambia with access to approximately US$ 189 million. Despite this injection, the market sentiment remained largely unmoved, contributing to the challenges faced by the Kwacha.
The depreciation of the local currency in the third quarter of 2023 impacted foreign investors’ positions, while higher yields on government securities at the start of the quarter made issuing corporate debt securities costly. Consequently, shares became less attractive compared to government bonds and other money market assets.
Against this backdrop, an in-depth analysis of the capital markets as of September 30, 2023, compared to June 30, 2023, revealed a noteworthy 68.26% increase in total savings. This significant surge was predominantly driven by the expansion in the fund size of corporate bonds and the growth in both local and foreign collective investment schemes, reflecting the resilience and adaptability of the market amidst the challenges faced.
