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Analysts on Monday welcomed the listing of the Zambian currency, the Kwacha, on the Johannesburg Stock Exchange (JSE) but have cautioned that there is no need to overly be excited as this has nothing to do with the good performance of the local economy.
The Zambian currency was listed Friday on the JSE as one of the three African currencies in which investors, as well as importers and exporters, will now be able to protect themselves against currency fluctuations.
The other currencies are the Nigerian Naira and the Kenyan Shilling, and according to analysts, this means that market participants, wherever they may be around the world, are guaranteed a future price for a specific commodity.
"This is a derivative, which is a special type of contract that derives its value from the performance of an underlying entity. In this case that underlying entity is the future value of the Kwacha that is being traded," Mawano Kambeu, a finance and investment analyst said in a statement.
"Therefore all contracts are based off the value of the Kwacha, but the Kwacha is never actually held, so the Kwacha will not all of sudden appreciate because of a new demand for the Kwacha caused by the JSE," he added.
While acknowledging that the move will just be used as a hedging mechanism to protect investors and businesses from adverse effects of currency fluctuations, the analyst admitted that this may indirectly have some benefits on the Zambian economy as it may provide some additional confidence to investors making investments in the country's money market.
"There are pundits that feel, that Africa is the next big emerging market and this is a strategic step by two huge financial institutions in Barclays and Tradition Futures to further position themselves in the African financial market and a move by the JSE to increase its visibility to the international capital markets," he added.
Dr. Lubinda Habazoka, a business lecturer at the Copperbelt University (CBU), said the Zambian Kwacha has been picked because of its fluctuation tendency and that it was good for the country's prestige.
"It has nothing to do with the way our economy is performing but the Kwacha has been picked because of its fluctuating tendency where it goes to extremes," he said.
He, however, said there was need for the local stock market in Zambia to emulate what the South African bourse has done so that investors could also hedge locally.
Zambia's deputy commissioner Joe Kaunda, who represented the country at the trade opening bell occasion, described the move as a momentous occasion and that it confirms the confidence that the international market had in the country's economy.
Brian Tembo, head of the Lusaka Stock Exchange, said the local bourse was working on introducing such measures through collaboration with the South African stock exchange.
The JSE has partnered with Barclays Africa and specialist brokers, Tradition Futures, in working on the initiative from which to mitigate or assume foreign exchange risk in the three African countries.
