Zambia’s World-Beating 36% Local Bond Rally to Extend After Polls, Citi Says

The world-beating rally in Zambia's bonds is likely to extend if President Hakainde Hichilema decisively wins next month's elections, according to Citigroup Inc.

The bonds, denominated in the local kwacha currency, have earned investors a 36% return so far this year in dollar terms, more than any other emerging market tracked by Bloomberg. By contrast, an index of emerging local debt has returned just 1.35%. The upcoming, August 13 election is making some investors wary, however, as they wait to see if Hichilema can score a second presidential term.

Hichilema's sweeping economic reforms have won him praise from investors. So a "clear win" for him will lure offshore investors to the bond auction scheduled to be held soon after the election, Citi strategist Katie Kironde wrote.

"That renewed foreign bid would likely also drive the curve lower in the near-term," Kironde told clients.

Yields at Zambia's latest June 26 auction ranged from 14.25% for short-end securities to 17.5% on longer maturities. Its 10-year yield has dropped about 70 basis points so far this year.

An economic rebound fuelled by copper exports had already made Zambian stocks an investor favourite last year, lifting the Lusaka index more than 110% in dollar terms. But flows to local bonds picked up after January when authorities eased a cap on non-residents' ownership and allowed more participation in debt auctions.

Foreign investors' gains have been sweetened by the kwacha's 20% appreciation versus the dollar this year, adding to its 25% rally in 2025.

Kironde expects the kwacha to trade steady, within its current range through the election period. It traded Wednesday at 18.44 per US dollar, the highest since May 28.

"A stable currency has historically tended to support the incumbent at the ballot box," Kironde added.

Read the full piece on Bloomberg here.