Gerald Hamuyayi (FMVA)®, 𝗟𝘂𝘀𝗮𝗸𝗮, 𝗧𝘂𝗲𝘀𝗱𝗮𝘆, 𝟭𝟮 𝗡𝗼𝘃𝗲𝗺𝗯𝗲𝗿 𝟮𝟬𝟮𝟰 – Zambia’s equity market value has more than doubled year to date – beginning the year at K88.7 billion (USD3.4 billion), the Lusaka Securities Exchange Plc’s market capitalisation has surged to over K 187 billion (USD 6.9 billion) as of November 11. Adding almost K100 billion to the total market capitalisation. Notably, the Lusaka All Share Index (LASI) recorded a remarkable surge of 47.7% in kwacha terms and 39.3% in USD terms year to date.
This article deep dives into Zambia’s equity market, providing additional insights into some selected securities and prominent market developments. Given the recent noteworthy surge of Shoprite Holdings’ share price, a ‘𝙎𝙝𝙤𝙥𝙧𝙞𝙩𝙚 𝙃𝙮𝙥𝙤𝙩𝙝𝙚𝙨𝙞𝙨’ is introduced – offering speculative insights into the potential drivers of the rally.
The Zambian stock market has recorded a remarkable 47.7% growth year to date, with an almost equal split between winners and losers benchmarked against the Lusaka All Share Index (LASI) as shown in the table . The buoyant performance comes at the time when Zambia grapples with a severe energy deficit of over 1300MW.
At continental level, the Lusaka stock exchange ranked second to the Nairobi Securities Exchange PLC in USD return and first in local currency returns according to the markets update by African Markets as of 24 October, 2024. The impressive 51.3% Kenya’s USD return is largely supported by the 17% appreciation of the Kenya shelling against the USD. On the other hand, Zambia’s Kwacha to dollar exchange rate has slide 6.0% year to date. See African Market Table of African Stock Market performance for illustration.
The Shoprite Hypothesis
Having officially listed on the LuSE exchange in 2003 at an initial listing price of K4.2 per share – almost at par with the price of SAR7. Shoprite Holdings’ share price has however been stuck at the K60 – K64 level since 2016 with muted stock volatility in the period. The dramatic surge in the company’s share value caught investors off guard as the security posted notable price jumps including; K16 gain on 19 June, followed by a K20 increase on August 29, then by a K25 jump on August 30, a K31 surge on September 25, a K39 increase on 3 October and a K28.57 rise on October 9. The unprecedented bull run added a combined K159.57 absolute share gain before recording a 26.57 decline to K197 per share. The security’s surge year to date represents a landmark 207.8% in capital returns.
The speculative The Shoprite Group of Companies hypothesis is that this could be part the normalisation of LuSE’s share price to its Johannesburg Stock Exchange (JSE) valuation. The likelihood of this ShopRite hypothesis could see the price firm north of K400 with the current share price on the JSE sitting at SAR314.15 [approx. K475] against K197 on the LuSE. Historically, Shoprite’s share price on the LuSE has exhibited low volatility compared to its JSE counterpart, potentially due to the smaller number of shares offloaded on the LuSE [2.7 million] and could mostly in the portfolios of buy and hold institutional investors.
Prior to the recent surge, Shoprite’s share price had remained remarkably stable since 2011, recording a mere 1.5% compound growth over thirteen years – a figure unusually low for equity investments. Even more striking was the muted price movement during the COVID-19 pandemic, as the share price remained stable in the K60 levels, at the time when price volatility of traded securities was widespread.
ShopRite Holdings dynamics on the LuSE are characterised by noteworthy attributes according to some Zambian investors. The firm’s shares are described as being “mostly off the shelf,” by some retail investors indicating limited market liquidity. This illiquidity is potentially explained by a concentrated ownership structure, with a small number of investors adopting a long-term, buy-and-hold strategy.
The ShopRite Hypothesis thus suggest that a combination of factors – the arbitrage opportunity arising from normalisation of LuSE with JSE price, the historically stable price over the years, and the concentrated ownership structure, are good starting points to understanding the company’s muted and recent drastic price movements. However, additional factors may be influencing these aggressive price swings, particularly given Shoprite’s significant presence across Africa and its continued expansion in the Zambian market.
Zambia’s Capital Market Developments
1] In a significant market development, PAMODZI Hotels Plc delivered an outstanding 551% return following ASB Hospitality‘s mandatory offer at K4.62 per share, which increased ASB’s ownership to 99.12%. While the company is set to delist from the Lusaka Securities Exchange (LuSE) main board on October 16, 2024, trading will continue on the quoted tier until the The Securities and Exchange Commission, Zambia‘s (SEC) deregistration, with ASB maintaining its K4.62 cash offer to minority shareholders. However, with ASB’s dominant shareholding, a liquidity crunch is anticipated, making a strategic exit at the current offer price an opportune consideration for minority shareholders who can execute trades through their brokers.
2] Investrust Bank Plc’s unfortunate embroil in a historical K853.7 million capital deficiency for a local bank, that resulted in a 100% wipe-out of shareholders’ interest in the local bank. The bank’s insolvency, amounting to circa K750 million, led to possession by Zambia’s central bank. Subsequently, the company was delisted from the Lusaka Securities Exchange on July 15, 2024.
3] British International Investment‘s (BII) conversion rights for its preference shares in Zambeef Products PLC increased from one-for-one to one-for-3.0833 new ordinary shares. However, BII has not yet converted its preference shares, either in whole or in part. Zambeef’s share price is down 16% year to date, from K2.53 to K2.13.
4] The commencement of the first dollar traded REIT of the Real Estate Investments Zambia (RIEZ) on 21st October 2024. The REIT trades under a new name ZM4000000013 with the share price of USD 0.0749 per share. REIZ’s Net Asset Value was estimated at USD 69,703,920 based on management accounts, translating into Net Asset Value per share of USD 0.0806. This is a great investment addition for investors seeking currency diversification, a hedge against the historically depreciating kwacha.
Zambia’s equity market ranks among the top-performing markets globally, offering attractive returns that surpass those of traditional bank deposits and government bonds. Notably, with inflation reaching 15.7% as of October 2024, equity investments present an appealing opportunity for inflation hedging and diversification benefits, making it a compelling investment option.
