The Sunday Mail
THE Zimbabwe Stock Exchange (ZSE) experienced a dead cat bounce on Friday 5, 2016; a day after the announcement of the Monetary Policy Statement by the Reserve Bank of Zimbabwe as investors cheered the increase in investor limits.
However, bears returned to the market owing to what analysts described as a lack of strong market fundamentals.
A dead cat bounce is defined by investors as a temporary period of recovery in a predominantly bear market.
Last week, the market struggled to get a sound footing as it see-sawed between gains and losses.
A day after the MPS, the industrial index rose 0,16 percent.
But by close of trading on Wednesday February 10, 2016; the index had dropped to within 0,96 points of the psychological 100-point level, which would be an all-time low, amid a massive sell-off in mid tiers.
The mining index has been flat at 9,53 points for the past three weeks, with investors opting to sit on the fence.
Commodity prices continue to fall on the world market.
Year-to-date, the industrial index has dropped by more than 12 percent while the mining index has plunged 17 percent.
Reserve Bank of Zimbabwe (RBZ) Governor, Dr John Mangudya said on February 4 the monetary policy was meant to improve liquidity, accountability and transparency in the financial sector.
Most importantly, the central bank increased the single investor limit on the ZSE to 15 percent from 10 percent and capped lending rates at 18 percent as a deliberate move to boost production.
Formerly, the exchange control policy allowed a single foreign investor to acquire only 10 percent of listed shares per counter on the bourse.
Also, in line with the indigenisation policy, the full fungibility of selected stocks was increased from 40 percent to 49 percent.
However, exchange control approval will be required for full fungibility status.
Fungible stocks are those shares that can be traded in two or more stock exchanges in different countries.
Old Mutual, for example, is listed on the ZSE and on the London Stock Exchange.
If shares are fungible, it is possible for investors to buy their shares in one jurisdiction and sell them in the other.
Last week, Old Mutual’s share price climbed 7 percent to US$1,79 on the back of the latest policy adjustment.
At midweek, mid-tier stocks fell fastest.
Afdis dropped 10 percent to US50,12c after its revenue in the half-year to December 31, 2015 fell to US$12,7 million from US$13,7 million a year earlier.
Barclays Bank Zimbabwe fell 2,6 percent after its parent company Barclays Bank plc agreed to pay US$2,5 million damages for violating US sanctions on Zimbabwe.
Padenga closed down 5,5 percent while heavyweights BAT and SeedCo Ltd lost 1,6 percent and 0,3 percent respectively.
Marginal gains were reported in Delta, Powerspeed and CBZ Holdings that all rose below 1 percent.
Analysts remain downbeat on the stock market outlook.
“All main commodity price indices are expected to decline in 2016 mainly owing to ample supply and in the case of industrial commodities, slowing demand in China and emerging markets,” said IH Securities in their recent research note.
However, some stocks are tipped to fare better.
Emergent Research head of research, Mr Ray Chipendo said the continued weakness of the South African rand and the current drought and its adverse effects on the economy could be a “backdoor discount” for some stocks, especially retail stocks.
“Where wholesale merchandise is on average 80 percent of sales, the recent 30 percent depreciation in the rand is directly translated into enhanced profit margins for importers. In this category, all things equal, OK, Afdis and Meikles will likely break ranks with the broad index.
“As the drought effects deepen, the need for irrigation equipment is being elevated. Proplastics, the irrigation equipment supplier is a likely beneficiary.
‘‘Traditionally, Natfoods has done well in terrible harvests,” he said.
