HomeBusiness Digest‘Without aid the Market will Continue Moving Sideways’

‘Without aid the Market will Continue Moving Sideways’

A TOTAL of US$3,4 million has changed hands on the stock market since trade resumed on February 19.

During the same period volumes of trade averaged US$100 000, but have been rising since the beginning of April.

According to Kingdom Stockbrokers, investors maintained their confidence in blue chip counters as about 30,6% of the US$3,4 million went to Old Mutual 14%, Econet (14%), Delta (10%,) Innscor (7%), Star Africa (3,6%) and Kingdom Miekles Africa (3,4%).

Trading started slow when it resumed, with heavy selling pressure from both individuals and corporates as they tried to raise foreign currency for their day-to-day needs.

As time progressed selling pressure increased but signs were already showing that the situation had changed as there were no speculative activities.

The market has been characterised by thin volumes on most counters and as a result prices remain low.

During the second quarter a lot of individuals showed interest in the stock market but activity on that front has been reduced drastically due to lack of disposable income.

“Companies are still adjusting to foreign currency salaries and most are not paying much to enable individuals to make savings,” said Kingdom.

“At the same time there are those few with free funds, who have taken their chances and have realised good returns with gains of over 100%, a gain that is difficult to get in any market in the world,” Kingdom said.

Market analysts said before investors bring their money, authorities need to amend the Exchange Control Act that allows investors to repatriate their funds smoothly and with ease, at a time when they feel they need to go back home.

During the period under review, foreign investors appeared to be reeling from the global economic crisis that has seen big international companies folding.

“Without financial aid, the market is likely to continue moving sideways,” said Kingdom Stockbrokers.

It said during the second quarter investors should consider companies with well structured balance sheets, that is strong cash flow positions and low gearing.

“Companies with good cash flows and strong dividend underpinning and their ability and ease to recapitalise, foreign assets and investments are stocks to pick,” said Kingdom.

Kingdom said the demand for a company’s products and whether they are increasing or not and if demand is sustainable are also important factors to consider.

Going forward, the restoration of fungibility is expected to stimulate the market as investors have always indexed the price of shares on the local bourse against the price of Old Mutual to the extent that in 2008, the company was being traded ahead of other counters.

As the market seeks to find the right price of shares, the indices have tended to remain while Old Mutual was trading at a discount to prevailing prices on the Johannesburg stock exchange and the London Stock Exchange.

Kingdom Stockbrokers’ top 10 picks during the second quarter of the year are African Sun, Innscor Africa, Delta, Econet Wireless, AICO, TA Holdings, KMAL, RioZim, Pretoria Portland Cement Company and Seed Co.

Renaissance Capital (RenCap) picked Econet Wireless, Delta and AICO among its top stock picks for the second quarter.

 “While economic conditions in Zimbabwe remain dire, if they improve from 2009, we believe overall mobile penetration in the country could accelerate to 47,5% by (year-end 2011), with Econet retaining a 60% market share (3,5million subscribers),” RenCap say.

Anticipated GDP per capita in 2011 suggests ARPU (average revenue per user) of $10 and an EBITDA margin of 51% at this time, the fund forecasts.

RenCap gave the country’s stocks an “overweight” recommendation, meaning investors should hold more Zimbabwe equities than are represented by benchmark indexes, because “valuations remain attractive”.

“The government continues to reverse previous policies and create a more free-market economic platform focusing on reviving the productive sector,” strategists Dzika Danha and Anthea Alexander wrote in their research.

There is a 10% probability of the market value increasing a further 111% to $3,5 billion by the end of 2009, and a 60% chance that it will reach $2,5 billion, a 51% jump from yesterday, RenCap said.

Under its “bear scenario,” the value of listed stocks may decline 9,6% to $1,5 billion. The market’s value may rise to $6,9 billion, or 315% from its current level by 2011.

Meanwhile, as markets around the world edge into negative territory weighed down by weaker global markets, Zimbabwe’s industrials and minings opened the week upbeat on the back of optimism that the local economy is now on the recovery path.

Zimbabwe Allied Banking Group (ZABG) research attributed the rally to news that the economy was on a recovery path and the Minister of Finance Tendai Biti’s visit to Washington to attend the International Monetary Fund (IMF) and World Bank spring meetings.

“It is hoped that these gatherings will be a precursor to the resumption of balance of payments support to Zimbabwe by multilateral lenders,” ZABG said.

Notable gains were recorded in Murray and Roberts, KMAL, African Sun, Delta, PPC and Hwange.
“We expect the market to start showing signs of slowdown as profit takers come to the market in a bid to crystallise their recent gains,” said ZABG.


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