Equities react to Monetary Policy

The Zimbabwe Stock Exchange (ZSE) indices surged to new highs this week, recovering ground lost after the elections, as investors piled into equities after the mid-term Monetary Policy Statement (MPS).

The MPS has however, elicited mixed reactions.

The past week witnessed the announcement of monetary and fiscal measures that include the introduction of separate Nostro Foreign currency accounts (FCAs) and RTGS FCAs in order to ring-fence foreign currency for foreign currency earners.

The move is expected to encourage export growth, diaspora remittances, banking of foreign currency into the Nostro FCAs and eliminate the dilution effect of RTGS balances on nostro foreign currency.

Analysts however, say the new tax on intermediated money transfer is rather punitive, although it is meant to boost revenues through tax collections.

“Going forward, we believe the parallel market will likely remain firm against this ambiguity and ongoing lack of US dollar liquidity.

“In addition, the existing money transfer tax which had been capped at 5 cents per transaction has now been increased to an effective 2 percent tax on nominal value of transfers in a measure intended to increase the tax collection base. It is our view that there will be resistance to the level of taxation which seems punitive at 2 percent,” said brokerage firm IH Securities.

But post announcement of the measures, both the ZSE index of leading blue chip companies and  for the rest of the market reached new records, as shares value reached US$13,4 billion.

The ZSE All Share index rose 9,97 percent to 124,47 while the Industrials Index was 10 percent above prior week to close pegged at 418,73. The market’s heavies — the ZSE Top 10 index — put on a hefty 12,7 percent to 129,54.

The resources index also rallied with a 0,5 percent increase to 164,55 maintaining a 1,5 percent gain it achieved in the month of September.

Month on month, the stocks traded slower in September as total market cap eased 1,78 percent to $12,2 billion as companies earnings released in the month failed to inspire growth.

Companies whose half year periods ended in June scrambled to release their financial results before end of last month, as per listing requirements.

The All Share Index fell 1,88 percent to 115,12 level while the ZSE Top 10 index let go of 3,36 percentage points to 117,6 on the market’s top cap counters rout.

The Industrials Index lost 1,94 percent of value to close the month pegged at 386,97. Monthly turnover jumped 22,9 to US$61,09 million with average daily trades of US$3,05 million achieved.

At 226,75 million shares, total volume traded were 59,51 percent above prior month.

Major value drivers were blue chip counters, Old Mutual, Econet and Delta that contributed 23,26 percent, 20,07 percent and 17,68 percent respectively.

Econet, which is the biggest counter by market capitalisation, indicated its intention to unbundle its fintech business, including Ecocash, and list it separately on the ZSE.

Market watchers contend the fintech division remains an attractive stand-alone asset and remains well positioned to maintain its growth trajectory as cash challenges continue. During the financial year 2018, the unit’s revenue amounted to US$244 million.

Top movers for September were Unifreight that jumped 45,77 percent and  First Mutual Properties and GetBucks, which rose 42,86 percent and 37,5 percent respectively.

On the downside were Simbisa, which eased 26,35 percent, followed by First Mutual Holdings that lost 12,06 percent. Turnall and Truworths also lost 11,11 percent and 11 percent respectively.

The market is expected to remain resilient going forward despite foreign currency challenges. Exchange rates on the parallel market have been hovering above 200 percent for US dollar to RTGS.

Finance and Economic Development Minister Professor Mthuli Ncube early last week announced a raft of fiscal measures to tackle the economic challenges. The economy is saddled with a high budget deficit and foreign currency shortages.

Some of the measures include limiting the issuance of Treasury Bills, speeding up the international re-engagement process and reducing the RBZ’s stock of debt, among others.

Prof Ncube also revealed that by the end of August this year, Treasury Bills had reached a cumulative US$7,6 billion, up from US$2,1 billion in 2016.

Further, domestic debt has increased from US$275,8 million in 2012 to US$9,5 billion, against an external debt of US$7,4 billion, bringing the total public debt to US$16,9 billion.

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