The Sunday Mail
Analysts project that the Zimbabwe Stock Exchange (ZSE) listed equities market will close the year 2020 above the 2019 level under all scenarios, with the best case scenario placing total market capitalisation at $85 billion, representing an upside of 179 percent growth year on year.
Stocks performance during the year will be hinged on performance of the economy and brokerage firm IH Securities projects that the market will still close higher than 2019 year-on-year, even in the event of a more conservative growth rate due to depressed agriculture production.
IH presents three scenarios — bear, base and bull cases — with varying economic growth projections based on varying factors that influence economic performance.
Under its bear case, if the economy contracts by four percent in real GDP terms, the equities market is seen closing at total market value of $38,35 billion, which still implies growth over the $29,7 billion recorded by close of 2019.
Based on a real GDP negative growth of 0,5 percent, IH’s base case places total market capitalisation at $61,43 billion.
A more bullish projection sets total market value at $85 billion, based on a GDP growth projection of three percent for the year, which is Treasury’s forecasts.
“Our base case market capitalisation, based on real GDP growth of -0,5 percent, subsequent to significant growth in earnings, buoyed by inflation and money supply growth, is $61,43 billion at the end of 2020, representing an upside of 107 percent from 31 December 2019 levels and up 103 percent as at 29 January 2020,” said IH in their Zimbabwe Equities Strategy 2020.
“Under more bearish conditions, largely linked to underperformance in the agriculture sector due to severe drought conditions and the consumer sector attributable to austere policy measures and a more conservative economic growth of -4,0 percent, we would expect the market to close 2020 at $38,35 billion.
“Our bull case assumes more robust GDP growth at 3 percent, according to the MoF (Ministry of Finance and Economic Development), and resultant earnings growth leading to total market capitalisation of $84,51 billion at year end, representing upside of 179 percent at current levels.
Nonetheless, we lean towards an outcome between our base and bull case.
Volatility in the exchange rate and the subsequent soaring inflation are seen driving demand on the equities market, as local investors look for capital preservation.
As of December 2019, annual inflation rates were estimated to be pegged at 521 percent and seen worsening, by market watchers, in the absence of clear solutions to address this economic poser. Government is, however, forecasting inflation to close at 50 percent by year end.
Shortages in foreign currency are also seen continuing while consumption will also be affected as the economy battles the austerity measures that were put in place to restore fiscal balance and confidence.
Importers will remain under pressure under such conditions, but stocks that are not 100 percent dependent on the local market will stand the heat and drive growth on the market.
“It is imperative to consider a company’s level of independence on the domestic market, foreign currency obligations, dependency on imports, exposure to the bottom-of-the-pyramid and the company’s level of control in pricing when valuing Zimbabwean stocks.
“As such, we have a natural proclivity towards ‘hedged counters’ which predominantly derive their earnings outside the country’s borders,” said IH.
Among top picks are Padenga, which recently diversified into gold mining, another export-oriented business, which will increase its allure on the market.
Regional seed manufacturer Seed Co International is also a favourite as it provides a currency hedge with earnings derived from regional operations.
IH also identifies Simbisa Brands on the back of its significant regional diversification in its operations while Seed Co Limited is another stock to watch on the back of its critical role in national food security thanks to Government and NGO support, thus proving to be a defensive stock.
Retail giant OK Zimbabwe and producers of staples such as Innscor are also among the top picks for the year.
Said IH: “We deliberately lean towards stocks that can defend earnings in real terms, such that we see selective buying opportunities in defensive stocks.
“Our top picks are Padenga, Simbisa and Seed Co International as they provide a hedge against domestic volatility.”