ECONOMIST Chibamba Kanyama says the shifting of thresholds in the bond market is a good development, urging retirees to take advantage and make safe investments in the bond market.
The Bank of Zambia recently announced adjustments to the government securities auction bidding thresholds from K29,000 to K499,000 for the non-competitive window per bidder per maturity tenure and from K30,000 to K500,000 for competitive bids per bidder.
The Central Bank stated that the move was meant to realign with economic changes as they hadn’t been revised in 20 years.
The changes will take effect today, September 13, 2021.
Commenting on this in an interview, Kanyama said individual investors would benefit the most.
“First thing to me is that it’s a positive development. It’s a good development in the sense that the threshold for retail, its good news for the retail investment. Retail investors are individuals, these are people who are earning their pension and they have some liquid extra money but the thresholds available of course didn’t make sense because the thresholds were too low. So this new post measure is aligned for higher participation in terms of investable funds for the retail, of course including the corporates too, everything has been adjusted but I think the benefit will accrue much more, in my opinion, to the retail investors. These are ones who were investing too little money because this 29,000 was just too low given the level of inflation,” he said.
“You see, for the retail investors, these are price peckers. Price peckers simply mean the Bank of Zambia dictates the yield or in simple language, interest rate. So they will give the yield and leave it or take it.”
Kanyama said Treasury bills were the best investment vehicles in Zambia.
“As you know in Zambia, the best investment vehicle in the money market is the Treasury bill, the government bonds; these are the ones which give a rate above inflation. Leaving money in the commercial bank, you get your return which is lower than inflation so you are really losing that. So the treasury bills are the major platform for investors and the lifting of the threshold means that people will now easily move their monies…so it will take quite a number of people in terms of volumes, higher volumes, to 499,000 from 29,000, that’s a huge move and I think it’s a positive development,” he said.
He, however, rebutted assertions that the move would only benefit foreign investors.
“So I don’t think that people should worry, there are some people who are worried that the new measure is just favouring international investors, they have already been there, they have actually been bringing in huge volumes like the last auction, we couldn’t even take some of the money they were pumping into the economy but let us look at the impact it will have on the retail investors, I think these are the ones who were affected by the low volumes, the low value investment,” Kanyama said.
“The complaint though is that the whole change will favour more of the international investors. These are the offshore investors who participate in huge numbers but these ones, they are on a bid, they participate through a bid. So what I see is that the move is intended to still make that happen. You see, local investors, overall, especially the local investors, including the retail investors make up just up to 10 percent at times when you remove the pension funds like NAPSA. They make up just about 10 percent of the participation at the Bank of Zambia securities market but that 10 percent in terms of quantum it means that it will move up in terms of quantum, the amount of money it may not be in terms of numbers of people participating but it will move up in terms of the volumes that people are investing in because of that adjustment. What I suspect actually for that thing to happen is that the Bank of Zambia is just responding also to the market. The liquidity is somehow in the market, there is liquidity in the market which is in retail hands and Zambians were actually looking for the best investment channels away from the commercial banks.”
Meanwhile, Kanyama urged retirees to invest their money in bonds as opposed to businesses they knew nothing about.
“If you put your money in a business, it’s very risky. You get your pension, you put it in a business you haven’t learnt anything about, it’s very risky. But if you are able to invest K499,000 of that amount of money after you just retired from government as a civil servant, as a nurse or a teacher, they give you that amount, the best thing is now that the threshold has gone up, put it there, you can even invest he entire K2 million instead of going into a business which you don’t even understand, you have made your money, invest and just be paid the yield at the usual time but at least you are assured of an income over your investment and that’s how I see it,” said Kanyama.