The Sunday Mail
Enacy Mapakame
MARKET WATCHERS say the current El Nino-induced dry spell could extend the miserable streak on the Zimbabwe Stock Exchange, further denting the market.
The continued slump of commodity prices on international markets is also forecast to dampen investor appetite for stocks.
Last year, investors lost more than US$1,4 billion on the bourse as the industrial index slid 30 percent and the mining index slumped 72 percent.
While Government projects economic growth of 2,7 percent this year, a recent World Economic Forum report warns of the possibility of future downgrades as the commodities’ price rout continues.
There are concerns that weakening demand in China, which consumes more than 50 percent of the world’s minerals, will directly impact exporters.
China’s economy is expected to slow to 6,4 percent from the double-digit growth of recent decades.
But analysts are more worried by the implications that the dry weather conditions induced by El Nino will have on Zimbabwe’s agriculture, which feeds other key economic sectors.
El Nino is a periodic weather pattern mainly caused by warm surface temperatures in the Pacific Ocean, altering rainfall patterns worldwide.
Economist Dr Gift Mugano said the ZSE would likely remain subdued in 2016.
“This year poses real challenges if you look at structural rigidities emanating from the drought, exogenous factors – particularly the expected continuous strengthening of the US dollar against major currencies – and the continuous fall in commodity prices . . .
“The stock market performance will remain subdued in 2016 as in 2015. The performance of the stock market is directly linked to the performance of the rest of the economy. Internally, in the face of continuous loss of disposable income plus continuous fall in prices will lead to sustained deflationary pressures,” he said.
Deflationary pressures and low disposable incomes also weigh down the market.
It is feared that losses on the bourse might affect stock that had “limited exposure to exogenous shocks” like industrials and telecoms.
In 2015, big cap counters Delta and Econet fell 30 percent and 64 percent respectively. Innscor, National Foods and OK Zimbabwe tanked 29 percent, 22 percent and 56 percent correspondingly.
Said Dr Mugano: “You will note that stock market indices and inflation dynamics trend together. Some fund managers invest in stocks to hedge against inflation.
“In the face of deflation, there is no economic rationale to buy stocks which one will sell at a lower price in the near future. It is very hard to tell the stocks that are likely to do well this year.”
Economist and Zimbabwe National Chamber of Commerce chief executive Mr Takunda Mugaga said companies might continue to forgo dividend payments this year.
“Generally, stocks will continue being lethargic,” he said, adding: “Most companies in manufacturing are into agro-processing, which is a big problem with the predicted drought. Resource counters will also have a cold 2016, with only four counters, I do not see it growing much.”
Mining counters Falgold and Bindura were among the top shakers of 2015, shedding 85 percent and 75 percent in that order.
Big drops were recorded at Zimplow, Star Africa and NamPack that went down 69, 66 and 65 percent respectively.
Stockbrokers Lynton Edwards Stockbrockers said stock market performance could hinge on anticipated increase in liquidity as a result of Government’s plan to clear US$1,8 billion owed to the African Development Bank, the World Bank and the IMF.
This is expected to unlock funding for local companies and improve production capacity.
“We, however, strongly note that any form of recovery will face headwinds from a poor agricultural season, issues to do with indigenisation, falling commodity prices, and further strengthening of the US dollar.
“Zimbabwe is banking on strong performance of the mining sector, but performance in that sector is likely to be negative on the back of low commodity prices and as a result there will be downward pressure on share prices for listed mining counters such as Falgold, RioZim, and Bindura,” said the stockbrockers.
