The Kwacha Responds to Market Forces, Takes Deep Plunge Against Major Currencies

It has been a very bad week for the Zambian currency, the kwacha.  Within a short period, it has taken the deepest plunge, losing close close to 40 per cent of its value, trading against the dollar at between K4,200 to K4,700 to the week ending October 25, 2008.

Dr. Caleb Fundanga, the central bank governor, has obviously been taken by surprise.  After assuring the nation back in August that Zambia had adequate foreign reserves to sustain a depreciating currency, Dr. Fundanga now has to justify how the kwacha could lose so much of its value in so short a period of time.

If Dr. Fundanga had remained cautious and warned investors and citizens to watch market trends, it would have been easy for him to tell us now that the problem is global in nature.

Even institutions such as hedge funds are suffering the worst redemptions in years as investors withdrew cash, seeking to find safe havens for their investments and savings.

Markets from New York to London and Tokyo are feeling the stress of hedge funds selling assets to pay off nervous investors

``I have never seen a market as full of panic as I've seen in the last seven or eight weeks,'' Kenneth Griffin, founder of Citadel Investment Group LLC, a Chicago-based hedge-fund firm, said yesterday.

Griffin has every reason to be worried: Himself a hedge fund supremo, started his business in 1990.  After enjoying years of non-stop growth for over 10 years, Griffin is finding himself facing angry investors.

With 30 per cent of the Kensington Global Strategies Fund expected to swing wildly due to the global credit crunch, Griffin holds 30 percent of the firm's $18 billion of assets in cash, according to an Oct. 8 report by Standard & Poor's.

The South African rand is trading at around ZAR11.9 to the US dollar.

Let's hope the wildy talked about 'fundamentals' become postitive; but one wonders how possible that can be if the US Treasury's new policy takes so long to have an impact on global markets

Otherwise, we may soon see the dollar going at K5,000 to the dollar

Cheers,