Taking Stock – Reporting season, inflation to sustain bull run


Barbican Asset Management

Introduction THE stock market has wreaked havoc in the field of investments as investors are flooding it as the industrial index breaks into re

cord highs almost on a daily basis.


Several explanations to the current bull run. The June reporting season, which is due in a couple of weeks could be one of the major forces behind the current bull run.


Several companies, mostly financial counters, are releasing their interim results while some are due to publish their year-end results in a few weeks time.


It has become a trend for the stock market to be bullish when inflation figures are released.


At first we thought it was by coincidence but the trend has revealed that probably investors are reminded of how bad inflation had gone up when figures are published.


This week we take a sectorial look at the performance of the stock market using the Barbican equity categorization.


Barbican financial index


The financial count-ers, which have been quiet for the greater part of the year, have begun moving upwards ahead of their interim results that are due end of this month.


Notable gains have been realised in counters such as ABC, NMB, Trust and CBZ.


While the interim results could be the main cause of interest in these counters, ABCs regional expansion that implies earnings in foreign currency and obviously higher earnings against a depreciating local unit, could be the major driver of this counters share price.


The index is volatile only when the counters are publishing results as seen by volatility last experienced in March when the counters released the December year-ends.


The index has generally been quiet for the past three months and has begun moving up and down ahead of interim results expected next month.

Barbican technology index


The counters in this sector have also been a surprise of the month with newly listed Cellsys causing havoc on the stock market.


This index incorporates companies that are into communications. The other counter is Econet.


Econet has been less volatile for the greater part of the year.


When it began moving upwards, it jumped significantly to trade at an average price of $28 up from an average of $16 for the last six months.

Cellsys, a recently listed counter on the bourse also jumped from an average of $17 to a current price of $25 representing a 47% increase.


Barbican printing index


Counters in categorised under this index include Hunyani, Zimpapers and Art.


Zimpapers has gained significantly in the past weeks to the surprise of many investors who have a “doggish” view of this counter.


A rumor of a possible unbundling of Zimpapers is the major force behind the upward rally of this counter. The counter put on a staggering 206% over a period of seven days.


Hunyani, an exporter has also gained so is Art each putting on 17% and 13% since June 1 2003.


Barbican investment index


This is an index of all companies whose main operations contribute to the gross domestic investment part of the economy.


Most of the counters, which fall into this category, are exporters. This has seen earnings reported by these companies skyrocketing, outperforming the major benchmark, inflation.


Earnings have been skyrocketing as the local unit is depreciating. This index has generally been very volatile but at the same time has continued to outperform the industrial index. The market expects exceptional results from companies that are due to release their interims in the next few weeks.


The investment index has tracked the industrial index since the beginning of the year. In the last three months the index has gradually outperformed the main index mainly because of the devaluation of the local dollar which saw most of the companies under this index, who are mainly exporters realising higher earnings.


As we move into the future, earnings are likely to grow at a rejuvenated rate, as another devaluation is not far. Investors should be extremely overweight in this sector.


Barbican consumption index


This index is made of mainly retail counters. The heavily capitalised stocks are also in this index, this includes counters such as Delta, Meikles, Innscor and Afdis.


The gradual death of price controls is opening opportunities of earnings growth for most companies in this sector. The sector has been haunted by price controls for a long time hence squeezing earnings of most counters in this sector.


Conclusion


The ever rising inflation is expected to push performance of the stock market to dizzy heights.


This and extremely palatable results expected from the companies that are to release results soon should sustain the bull run. To realise positive returns investors are advised to remain overweight on the stock market.