September ‘effect’ proved incorrect

ON all fronts September was a lively month for equity investors. After two months of negative returns the ZSE joined global markets in defying the September effect posting a positive return of 15,3%.

The September effect is a belief popularised in the US and eventually spread to most developed countries and stipulates that equities perform dismally in this month. Observed evidence, shows that over the past 50 years, on average, the Dow Jones index has fallen 1,2% in September. This is attributable to the fact that many large hedge funds and mutual funds normally begin reducing their exposure in stock markets so as to book profits before their fiscal year end which is October.
Contrary to that notion, the Dow Jones put on 2,27%, the FTSE 100 advanced 4,58% whilst the NASDAQ surged 5,64%. 
Japanese markets were the only ones among top global bourses to end September in the red with the Nikkei 225 shedding 3,42%. Positive sentiment was buoyed by the expected recovery of the global economy which saw countries such as Japan, Germany and France posting positive quarterly economic growth rates recently, signalling an end to the recession in those countries. However, as the month came to a close cautious trading set in ahead of the release of economic data by the US government.
Market participants’ fears were proven correct when data on sales of new houses and purchases of durable goods came out depressed. The jobs report was also downbeat as US employers slashed 263 000 jobs in September pushing the unemployment rate to 9,8% which is considered the highest level in 26 years. With all these negatives market watchers began to question the extent of the recovery in the global economy. This also prompted pessimistic traders and analysts to argue that share prices could have run ahead of macro-economic fundamentals.
Trading on the ZSE was initially directionless owing to tight liquidity conditions but steadily firmed in the last fortnight of the month due to selective buying in the big caps. Foreign investors are evidently big buyers accounting for as much as 80% of trades. It seems they are strategically positioning themselves in anticipation of an economic turnaround. The firm trend was further cemented by price ramping for window dressing purposes mainly by investment professionals who were hoping to show good performance numbers and also enhance their management fees. 
Econet was the money-maker of the month as it grew by 64%. This was after the company released impressive six months’ results to 31 August. Turnover was US$132 million with profit after tax solid at US$41 million.
The company became the first on the ZSE to pay a dividend in the multi-currencies era. It paid US8 cents, equivalent to a third of earnings, to its shareholders as an interim dividend with indications that another payout could be made come year-end in February.
At a time when competition views 1 million subscribers as a magic number, the company has already set itself a target of 4 million by February 2010. This ambitious objective was premised on the US$200 million deal arranged with the company’s technical partners namely ZTE of China and Ericsson of Sweden who have been supplying equipment to Econet for some time now. When the year started, only 10% of the population had telephones but the planned expansions by Econet and Telecel may result in a telephone penetration rate of approximately 47% by February 2010. That would make it difficult for new players to come in as the existing networks would have covered every part of the country.
Truworths was the second best exchange performer with a gain of 54,5% which is surprising considering that clothing retailers are likely to be among the last group to climb out of the deep hole. Low income earners do not have enough disposable incomes to spend on clothing and when they do they turn to cheap alternatives such as Mupedzanhamo flea market. On the high income end, several people are travelling to South Africa and Botswana where better quality clothes are available at lower prices. Reflecting the tough environment Truworths posted a loss of US$439 888 during the six months to July and this position is unlikely to change in the next twelve months.
CBZH firmed by 40,8% as it continues to ride on a wave of positive results after it emerged as the biggest bank controlling 24,8% of the deposits in the banking sector. It also recorded the highest earnings of US$4.3million. OK put on a slight 1.4% on media reports that Shoprite will go ahead with acquiring a controlling stake in the retailer through injecting 167 million rand.
The resource index advanced 11.6% owing to a 22% rebound in RioZim and an 8,1% gain in Hwange. Appetite for the coal miner emerged after the colliery recorded a profit of US$1,6 million in the six months to 30 June 2009, although US$970,000 of that was a tax credit.  The company also disclosed that its dragline machine is now functional a move that will help increase production. Bindura put on 5,6% despite disclosing at its AGM that it is looking for funding to resume operations. The company also revealed that it requires US$20 million immediately and up to US$150 million in the long run to capitalise the business. 
Overally, 35 counters were positive, 6 were unchanged while the other 35 stocks ended at lower levels than the previous month. Market capitalisation went back to nearly US$4 billion as some companies re-rated to higher levels in line with their improved operations. Activity was again high as evidenced by turnover which ended the month at US$45,2 million on the back of increased incidences of big deals.
Focus has now shifted to companies reporting their earnings in September as investors seek to replicate high returns achieved on Econet soon after it announced its results. That is not going to be an easy task. But it does not hurt to try.

 

Ranga Makwata & Kumbirai Makwembere

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