The Sunday Mail
Enacy Mapakame – Business Reporter
THE Zimbabwe Stock Exchange (ZSE) shed more than US$400 million in value in the past seven weeks on continued selling pressure as poor corporate earnings and economic uncertainty continues to weigh on market sentiment.
By close of trade on Wednesday, the ZSE’s total market capitalisation, which measures the market value of listed companies’ outstanding shares, had dropped 7,5 percent to US$4,9 billion from US$5,3 billion reported on September 3.
Earlier this year, analysts had forecast that the market cap would exceed US$6 billion by the end of 2014. The growth was premised on expectations of improved economic performance.
However, growth forecasts have gone off the rails on weak consumer demand, working capital constraints and high production costs. Finance and Economic Development Minister Mr Patrick Chinamasa has since slashed economic growth estimates from 6,1 percent to 3,1 percent.
“There is too much attention to politics at the expense of economic fundamentals ideal to turn around the country’s fortunes,” FBC Securities alternative investment analyst, Mr Albert Norumedzo told The Sunday Mail Business last week.
The sharp decline in the ZSE market capitalisation reflects the persistent fall in share prices, especially among the major market movers, he said, but there are expectations that stocks will recover marginally before year-end. This recovery will not be enough to lift the market beyond initial growth forecasts of US$6 billion. In a recent research note, Stockbrokers Lynton Edwards Securities said the stock market was likely to remain flat in 2014 or decline more than 10 percent in the worst case scenario. Successive losses in heavyweight and mid-tier counters have pulled the ZSE value lower since early September when the mainstream industrial index had raced to within 200 points.
The main index has lost 7 percent ever since, while the minings index has slumped 26 percent. Delta Corporation, the country’s biggest company by market capitalisation, has fallen 10,7 percent in the review period as the beverage maker continues to report revenue losses due to depressed demand.
Delta reported on October 13 that its second quarter revenues dropped 5 percent after volumes declined 3 percent. Industrial conglomerate Innscor Holdings Ltd fell 15,5 percent after its recent full-year figures disappointed, showing earnings per share tumbled from US7,19c to US4,32c a year earlier.
Tobacco processor BAT Ltd plunged 3,7 percent while Old Mutual tanked 2 percent. Seed Co Ltd and Hippo Valley have also declined.
“The poor corporate financial results point to a depressed economy as most of them showed a decline in earnings,” said Mr Norumedzo, adding this will likely keep the stock market lower going forward.
However, consumer stocks, particularly those with product offerings for the middle to lower end of the market, may stand the heat, other analysts predict. National Foods Ltd, which has soared 21 percent and Econet — remaining resistant at around US78c — are expected to lead the stock market recovery for the remainder of this year. While the bulk of earnings reports released in the past few weeks have disappointed, National Foods Ltd showed tremendous growth. In the year to June 2014, the agro-processor reported after tax earnings soared 20 percent to US$16,7 million from US$13,9 million a year earlier. The company said it will return a total US$5,6 million in dividends to shareholders. Harare brokerage firm IH Securities contends that the ability of companies to tap into the lower end of the market, including the informal sector, will hedge them against the turbulent economic environment.
“Counters positioned to service the lower end of the market and with an ability to tap into the growing informal sector are therefore likely to remain defensive in this environment. Econet will, however, face challenges emanating from the 5 percent duty levied on air time for voice and data and the 25 percent customs duty levied on mobile handsets, announced in the mid-term fiscal policy statement.”
The duties will “negatively impact on average revenue per user and slow down Econet’s on-boarding of customers onto data,” said IH Securities, which also forecasts increased squeeze on consumer expenditure fro m rising prices due to increases in fuel costs.
