ZSE expected to be bearish

Africa Moyo —
MARKET WATCHERS say the Zimbabwe Stock Exchange (ZSE) is expected to be bearish this year, weighed down by an illiquid market, including the envisaged risk premium on money market assets.

Last year, the economy shrunk to 0,6 percent, resulting in the stock market declining 15 percent, while turnover at US$194 million was the worst since 2009. In 2015, turnover stood at US$228,6 million.

IH Group director Mr Lloyd Mlotshwa told The Sunday Mail Business last week that while there was an improvement in the external position (current account deficit estimated at US$1,99 billion for 2016, compared to US$3,3 billion in 2015), liquidity challenges remain.

Last year, especially during the first nine months of the year, investor appetite weakened as corporate earnings fell. Most companies focused on restructuring in order to protect thin margins in the face of downward pressure on revenues across the board.

But during the fourth quarter, the ZSE recovered as total market capitalisation climbed 46 percent from US$2,8 billion on October 1 to US$4,1 billion on December 31.

Anxieties that preceded the introduction of bond notes in November forced many investors to switch from cash and near-cash assets to equities.

As a result, overall market capitalisation rose 28,8 percent year-on-year while the key industrial index gained 25,8 percent in the same period. IH Securities however expects “sustained macro-economic pressure in 2017”.

“We are however optimistic of an improved agricultural performance against better anticipated rainfall and funding in 2017, although this will be coming off a low base.

“At the same time, the fiscus does look to remain stressed, as the unsustainable wage bill and revenue shortfalls continue to crowd out capital projects.

“Our early view on the stock market in 2017 suggests that from a valuation perspective, the market is quite full and buyers would have to be very cautious or selective at this point,” said Mr Mlotshwa.

It is believed that fears of holding cash will keep most investors locked in the market. Experts say occasional profit taking will likely soften the market from where it closed in 2016.

Mr Respect Gwenzi, a stock market analyst and managing director of Equity Axis, also suggested that the stock market would most likely “retrace southwards (in) 2017”

He said the second half of the year will likely see equities becoming softer as broad softer financial performances weigh on the market while general liquidity weakens.

“Tobacco exports, a major source of liquidity, are usually relatively lower around the beginning of the second half and this likewise will dampen share prices.

“We are of the view that the 2016 rally was not fundamentally driven and therefore not sustainable. The shifts in asset allocation with a tendency towards equities was largely a risk aversion and not necessarily return inspired.

“Therefore, most stocks will begin to come off reflecting the environment as well as company specific performance,” said Mr Gwenzi.

A few exceptional counters, mainly those which saw increased profitability, are expected to hold at current levels. Mr Gwenzi believes heavy caps would be under weighed by uncertainties and reduced profitability in Delta as well as Econet.

Old Mutual may also revert to near discount levels to the JSE and LSE prices, while Innscor is likely to sustain rising momentum.

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