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Better prospects on the horizon

April 27, 2021by Nicholas Kabaso
  • It would seem that the global investment community is hopeful of an improvement in the broader fiscal outlook for the country which is demonstrated in the yield on the 2027 USD bond. According to Bloomberg, the bond is yielding some 19.612%, which is a whisker of the year to date low of 19.605% level recorded in early March.
  • An upgrade by Fitch and the IMF, seeing the potential for a deal before the August elections, will keep frontier market investors interested, given the opportunity for a significant return. These investors have expressed further comfort in the outlook for Zambia given the current trajectory of the copper price, which is Zambia’s largest earner of hard currency.
  • Copper remains on the front foot as we enter the EU session. The red metal posted a fresh 10-year high this morning, hitting $9885/tonne before paring back slightly. It would seem that the stars are aligned for copper. The Fed is likely to remain ultra-dovish. The BoJ has offered a steady hand, and the ECB has indicated that it will continue to support a strategy of economic recovery. Couple this with governments moving forward aggressively with green energy targets, talk of infrastructure projects, and a threat to supplies as the mining and port workers in Chile threaten to strike, and one has the perfect set of circumstances to warrant higher prices.
  • Internationally, the US remains the focal point for much of the world’s direction from a macro perspective. There is a growing groundswell of discontent, with investors in an uproar over Biden’s proposed capital gains tax rise. Although it will only affect 0.3% of the population, according to the White House, it is widely regarded as a disincentive to invest. The White House would argue that it is a small step towards balancing the disparity between rich and poor. However, the conservatives will argue that it is in keeping with the policies of the Democrats, which will eventually impose a heavy burden on taxpayers.
  • Great news that the US has approved the resumption of the J&J vaccine. Given its role as an important yardstick for the rest of the world, lifting the “pause” in America has allowed other countries around the world to do the same. While India is suffering through a major Covid-19 humanitarian crisis, new cases in the US have fallen sharply in the past week, with deaths having subsided to the lowest since Oct 2020. As the vaccination programme continues to roll on and the US emerges from its massive wave, the outlook is steadily improving. For the most part, vaccines are being accepted and are gaining traction. Although this is no guarantee of the end of the pandemic, it will offer the broader population some immunity and allow the authorities to continue to open up their economy. This news bodes well for a robust recovery from Q2 onwards, with strong traction anticipated through H2 2021.
  •  Ahead of the FOMC decision and statement tomorrow, it is unlikely that the market will adopt any significant position. That said, the USD has recovered off its lows and is treading water at the moment as investors wait for a fresh catalyst. The overwhelming bias remains firmly set against the USD for now as expectations of an ultra-loose Fed as well as the large twin deficits raise the risk of further USD depreciation. The narrative for the ZMW remains unchanged as we enter the start of today’s trading session. We expect a steady as she goes approach with pressure never far off. Month-end commitments likely to influence liquidity and thus price action.
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Nicholas Kabaso

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