The Stock Market

The number of listed companies on the Malawi Stock Exchange (MSE) has increased to nine with the coming in of Sunbird Tourism Limited on Monday 12th August 2002. The listing follows the company’s offer for sale of 39,237,400 shares. On the first day of trading, 98,000 shares changed hands at MWK 1.90 per share up by MWK 0.05 from the pre-listing offer price of MWK 1.85 per share. This saw the Malawi All Share Index move up to 362.99 from 362.98 registered at the close of business on Friday, 9th August 2002. This reflected the confidence and interest the investors have on the equity market and is welcome news for the Malawi economy as it portrays a change in the investment culture.

For decades, the role of the financial sector has been distorted by the intensive trading of treasury bills usually to finance persistent government budget deficits. This has seen interest rates remaining high and has in the process crowded out the private sector. This has compromised the growth of the economy.

Financial Markets and Interest Rates

Treasury bills auction results for 9th August 2002 indicate that yield rates continued the downward trend. The 91 days rate declined to 39.34% from 39.85% while the 182 days bill slowed down to 41.64% from 42.46%. Similarly, the yield rate for the 273 days tenor contracted to 42.39% from 42.57% recorded during the auction of 2nd August 2002.

The downward trend is expected to continue in the short and medium term following indications from government to slow down domestic borrowing with a view to promote economic growth. The move has been supplemented by a recent cut in the Bank from 46.8% to 43%, which has seen major players in the financial sector adjusting their base lending rates. So far, major commercial banks like National Bank of Malawi, Commercial Bank of Malawi and the First Merchant Bank have cut their base rates to 44% while Malawi Savings Bank has adjusted it to 46%.

Short and medium term indications are that the market should expect further declines attributable to excess demand for the paper coupled with the above alluded to factors.

The US Economy

US economic outlook remains grim despite industrial production inching up 0.2% in July, extending gains for the seventh month. The recorded figure was also better than the 0.1%, which was projected. Furthermore, the fact that gains in industrial production largely emanated from the auto sector has done little to reverse negative sentiment. In fact, there are rising concerns over consumption, by far the largest component of the U.S economy and an area that has held up relatively well. Consumption now appears to be unbuckling under the pressure of the recent decline in equity markets.

Earlier in the week the US Federal Reserve FOMC left rates unchanged at 1.75% but adopted an easing bias in response to continuing dim growth prospects. This coupled with the dash to certify financial statement by close to 1,000 CEO’s of US companies before the Securities and Exchange Commission (SEC) appears to have to given US equities markets some reprieve. Earlier in the week the US Federal Reserve FOMC left rates unchanged at 1.75% but adopted an easing bias in response to continuing dim growth prospects. This coupled with the dash to certify financial statement by close to 1,000 CEO’s of US companies before the Securities and Exchange Commission (SEC) appears to have to given US equities markets some reprieve.

Euro Zone

Concerns over European growth prospects and the attitude of the European authorities continue. Despite downgrading growth and inflation expectations, the European Central Bank remains reluctant to cut interest rates in the short term. The seeming absence of pro-growth economic policies by European Authorities will tend to undermine the Euro-zone sentiment in the short to medium term.

International Currencies

The mood of global risk aversion is expected to ebb slightly in the short term, especially in light of the new IMF package for Brazil. This will tend to minimise capital repatriation back to the US to some extent. The Euro may also take some comfort from reduced fears of heavy losses for European banks, which have relatively higher exposure to Brazil.

In the long-term, the dollar will remain susceptible to the persistent current account weakness, especially as subdued global growth will make it more difficult for the US to cut the deficit painlessly. The greenback is however still anticipated to gain support from the greater policy flexibility of the US Federal Reserve Bank going forward.

Emerging Markets

The Zambian government and Anglo American are today, 16th August due to sign a Memorandum of Understanding to govern Anglo’s exit from the Konkola Copper Mines (KCM).
Finance minister Emmanuel Kasonde revealed on 15th of August that the MOU would ensure that KCM has sufficient funds to run viably for the next 18 months, which is the exiting period. Approximately US $105 million is required to run KCM during this period. Mr Kasonde also said that government would use this period to seek a new strategic partner. Under the MOU Anglo would the settle the agreed upon US $30 million exit fee as well as extend a bridge financing facility to KCM. The Zambian government is also expected to put a bridge of US $8.5 million. Earlier this year, Anglo American announced that it was pulling out of KCM, which accounts for 67% of Zambia’s copper production and is a major earner of foreign exchange for the Southern African country.

This report is issued by Loita Investment Bank Limited ("LIB") exclusively for its customers. LIB has made reasonable efforts to ensure the accuracy and completeness of the information contained in this document. However LIB does not accept responsibility in respect thereof nor in respect of any recommendations, implied or implicit, contained in this document. Unless otherwise stated, all views expressed herein (including estimates and forecasts) are solely those developed by our Economic Analysts and are subject to change without notice.