The Sunday Mail
THE continued squeeze on consumers coupled with weak industrial output will naturally affect the performance of stocks for the remainder of the year, market watchers believe.
However, companies where management has ably steered clear of the treacherous economic environment and accessed cheap working capital are expected to fare relatively better.
Stockbrokers IH Securities forecast in their latest Equity Strategy Report that counters on the Zimbabwe Stock Exchange would continue drifting sideways.
The report says heavily capitalised counters like Delta, Econet, and Seedco would likely weather the storm due to their solid financial base.
The cash infusion of US$600 million from recent tobacco sales is also expected to fillip consumer-facing stocks.
“With the ongoing trend of consumer down-trading, we like consumer counters that are positioned to service the lower end of the market. We maintain that stock picks should centre around defensive stocks with good management teams, regional diversification and with the ability to secure cheap lines of capital.
“In the absence of any change catalysts, we expect the economic environment to remain generally constrained in the second half of 2014,” says the report.
The negative forecasts are drawing from weak overall economic outlook.
Government has slashed growth estimates for this year by half to 3,1 percent, as manufacturing output continues to slide.
IH believes economic growth will be flat this year.
The World Bank has also revised growth projections to 2 percent from 4 percent estimated earlier in the year.
Analysts expect company margins to remain under pressure and non-performing loans, currently above 16 percent, to further expand due to deflation.
“Deflationary pressures have been stronger in tradeable goods, suggesting that pass-through from a depreciating rand has played a significant role in pushing the economy into deflationary territory,” adds IH Securities.
Capacity utilisation in the manufacturing sector declined from 57 percent in 2011 to 39 percent last year, as companies struggled with funding, cheap imports and low consumer demand.
The Confederation of Zimbabwe Industries expects capacity to further decline to around 30 percent in 2014.
Inflation went below zero in February and as of June, year-on-year inflation stood at minus 0,08 percent.
“The concern is that declining prices may further discourage investment in those industries targeted at the local market,” says IH Securities.
The ZSE’s total market capitalisation, inclusive of Econet’s class A shares, stood at US$5,6 billion in July, representing a 3 percent decline since January.
Turnover dropped 11 percent to US$22,2 million with average daily trades of US$976 000.
More than 133 million shares changed hands on the ZSE last month, up 46 percent from June.
Overall, industrials rose 0,92 percent in July, helped by a 7,5 percent gain in Econet, offsetting losses in Delta and Innscor, down 2,3 percent and 5,1 percent respectively.
Seedco provided support with a 14,3 percent surge.
The mining index extended gains from a month earlier, rallying 54,9 percent, spurred by a 77,1 percent jump in nickel miner Bindura.
Falgold doubled in value having plummeted 50 percent in June after it announced that it will be disposing Dalny Gold Mine to resources company Africa Consolidated Resources, while coal producer Hwange plummeted 36 percent.
Of the index shares in July, starafricacorporation rose the most, up nearly 200 percent, followed by TA Holdings and banking group ZBFH, that climbed 100 percent and 75 percent in that order.
Industrial conglomerate Radar fell heaviest, down 75 percent, while transport operator Pioneer fell 40 percent. Tyre maker NTS declined 37 percent.
