HomeBusiness DigestZSE one year on: Political uncertainty blights recovery

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WHEN the Zimbabwe Stock Exchange (ZSE) began trading last year, only one counter –– Apex –– traded. The economy had gone through transformation almost overnight.

The Zimbabwe dollar had been demonetised and replaced by the rand and the US dollar unit. The change also saw former investors withdrawing from the market owing to liquidity problems and new ones coming in. Foreigners also appeared on the market targeting blue chip counters.
There was a big spread between buyers and sellers. Buyers offered prices that were below what sellers were asking for. And naturally no one sold.
Now, a year later, the ZSE has seen the volume of shares traded in the same period reaching US$427 million.
Tight liquidity has not pushed the market and this is coming at a time when alternatives such as the money market have become unattractive.
According to stock brokers, investors made money on the local bourse in 2009 as evidenced by an uplift of 52% achieved, a good return by any measure. In 2010 the local market is said to be “not so rewarding”. But there is consolation, it is not the only market doing badly.
The market was quite firm in 2009 as shown by a 52% rally in the industrial index. The rally was buoyed by strong volume growth with daily turnover of trades averaging just under US$1,7 million.  But this year, the equities market has been trading rather mixed. 
Economist Eric Bloch told businessdigest that the stock market had been relatively moribund last year, primarily due to the gross money market illiquidity precluding funding of equity investment.
“This has impacted negatively upon all usually focused upon investment in equities, but especially upon pension funds and insurance companies who, traditionally, are key players on the Stock Exchange,” he said.
“Concurrently, the volatile state of the Zimbabwean economy, and consequential investor reservations as to viability and prospects of listed companies has markedly deterred investment.”
He said with most of the world’s bourses depressed, the 2008/9 global financial recession and economic decline had played against both investor confidence and ability to fund deals on the ZSE.
“Therefore, very few will have made any substantial gains on the ZSE last year, and have to await political stability, economic recovery, and money market liquidity before real gains can be achieved,” Bloch said.
Kingdom bank analyst Chengetai Zvobgo said having become used to getting attractive returns last year, “it is understandable why some investors are beginning to get worried whether they are making the right decision by sticking to the equities market, despite its depressed performance”.
Analysts said during the period under review many investors, however, seemed to have forgotten the high political and economic risks in the country.
“It would be interesting to compare the risk-adjusted returns, not absolute, of Zimbabwe against other competing countries and see if the argument on returns would still hold. Chances are that the country may come out last,” an analyst said.
The analysts said optimism and improvement in the global economy has helped to push most markets up.
Economist Brains Muchemwa told businessdigest this week that the stock market was still being weighed down by the economic risks that are priced in the investment decisions, whose risks are real.
“The economy-wide liquidity issues affecting the availability of working capital, the poor consumer demand and the fragile global economy are all real fundamental issues that are affecting company revenue models, and hence earnings,” he said.
However, Muchemwa said evaluating these same risks showed that 2010 will not be an easy walk for the market.
He points to the fact that the country’s banks do not have much to lend, weak consumer demand, government, the biggest single employer, failing to award civil servants salary increments.
“On the other hand, the economy-wide liquidity challenges continue to negatively affect the ability of listed companies to actively pursue right issues to bolster their weak balance sheets,” Muchemwa said.
Trading was brought to a halt on the ZSE in November 2008 after Reserve Bank governor Gideon Gono read the riot act to banks that were using fraudulent cheques to buy shares and artificially inflate their prices.
Suspension was further extended after the country’s Securities Commission ordered stockbrokers to submit audited financial reports of their net worth by the end of December 2008.
The commission warned broking firms that they would be closed if they failed to meet the deadline. A low transaction cost that came into play on January 11 2010 when the market was already depressed was expected to improve the market performance but heightened fears that foreign owned companies would be forced to sell controlling stakes to blacks have slowed the market.
“Trade by foreigners in 2009 pushed the market up. However this year foreigners have been shying away because of the global political agreement problems and the indigenisation laws,” an analyst said.

 

Paul Nyakazeya

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