Zambia: How the markets are reacting to Hichilema’s landslide victory

Zambia's opposition leader, Hakainde Hichilema, has clinched a resounding victory in the country's presidential election, defeating the incumbent President Edgar Lungu by nearly one million votes. This marks the most substantial victory margin in Zambia's political history, with Lungu disputing the fairness of the election. With Hichilema's imminent rise to power, the markets have responded positively, signaling optimism for stability and economic growth under the new leadership. Daniel Cavassia, Africa Economist at RMB, shed light on how the market is reacting to Hichilema's victory and the prospects for Zambia's economy moving forward. Reflecting on the market's response to Hichilema's win, Cavassia noted a surge in the Quacha and affirming Euro bonds, indicating confidence and approval of the election outcome. Incumbent President Lungu's concession and the anticipation of Hichilema's upcoming address have set the stage for a peaceful transition of power, further bolstering market sentiment. The unexpected election results have prompted a renewed interest in local debt and Euro bond investments, with the Quacha poised to strengthen in the coming weeks. The shift in market dynamics aligns with the Zambian population's vote for change and sets the tone for a stable political environment. Assessing the economic outlook under Hichilema's administration, Cavassia highlighted the constructive economic proposals put forth by both political parties in anticipation of the election. The focus on economic recovery and fiscal prudence was a common theme, with expectations that Hichilema will uphold these commitments to steer Zambia towards growth and stability. The imperative need for IMF support to navigate the economic challenges intensified by the pandemic underscores the significance of securing an IMF deal to underpin Zambia's economic resurgence. Market participants anticipate Hichilema's government to prioritize sustainable fiscal policies and drive economic growth, positioning Zambia for a resilient recovery post-pandemic. Delving into the currency surge and its implications for inflation and interest rates, Cavassia emphasized the pivotal role of an IMF agreement in sustaining the recent positive market trends. The expected IMF deal is viewed as crucial for stabilizing the currency and bolstering the external balance of Zambia, driven by the rebound in copper prices and prudent fiscal management. The prospects of an IMF agreement loom large on the economic horizon, with stakeholders closely monitoring the developments and the potential impact on inflation and interest rates in the medium term. In anticipation of an IMF deal, the market sentiment leans towards a positive outlook, with expectations of a potential agreement in the first half of the coming year. The urgency of addressing Zambia's debt challenges and leveraging IMF support to fortify the country's economic foundations further underscores the significance of a timely deal. The alignment of key economic indicators and recent developments, including SDR allocations and political stability post-elections, bodes well for accelerating the IMF negotiation timeline, possibly materializing before the end of this year. With the bond market witnessing heightened activity following the election results, the focus on RMB's current exposure and investment strategies came to the forefront. While Cavassia refrained from divulging specific trading details, the heightened international interest and pent-up market demand signal a favorable climate for potential investment opportunities. The market's anticipation of Zambia's economic trajectory under Hichilema's leadership underscores the importance of strategic investments and prudent financial decisions to capitalize on the evolving market dynamics. As Zambia prepares for a new chapter under Hichilema's leadership, the market's response reflects a blend of optimism, caution, and strategic positioning in anticipation of pivotal economic reforms and policy directions. The unfolding developments post-elections set the stage for a transformative period in Zambia's economic landscape, with stakeholders keenly observing the trajectory of the IMF negotiations and the subsequent impact on the country's economic outlook and stability.