Uncertainty dents ZSE growth prospects

THE month of May brought little joy to the Zimbabwe Stock Exchange (ZSE) with marginal gains recorded as political uncertainty continues to dent prospects of a sustained growth at the bourse.

Both the mainstream industrial and the mining index showed signs of stuttering with the former growing 0,25% in May to close at 129 points.

 

The mining index grew 4,36% during the month to close at 159,28 points.
This is the first time that the two indices have registered very low growth since the reopening of the local bourse in February last year after three months of inactivity.

“This (the performance in May) was commendable and a relief to investors considering that in the previous week, both the mining and industrial indices were in the top 5 of the continent’s worst performing bourses,” said analysts from Kingdom Financial Holdings.

Poor performance of the local bourse, blamed largely on the shaky political situation in the country, leaves investors looking to the money market where returns remain firm on the back of liquidity problems since the economy adopted multiple currencies.

Short term borrowing continues to be the cheapest money source on the illiquid and inactive money market.
Seven-day borrowings were attracting a 5% interest at the opening of this week while the longer term borrowers (for up to 90 days) were paying up to 27 cents for every dollar.

Despite liquidity problems, the money market remains the major source of finance for companies that have failed to attract lines of credit but are desperate to resume production.

“Companies are constrained from increased capacity because of limited and very expensive loans from the local banks, lack of foreign lines of credit and general lack of competitiveness against cheaper imports,” said an analyst with a merchant bank.

“Moreover even if these hurdles (of getting finance) can be cleared, the economy still suffers from very low aggregate demand. There is not enough money around to purchase all commodities that industry can provide and yet companies do not have the luxury to produce for warehousing given the high borrowing costs.”

Political uncertainty has also had a far reaching impact on the stock market and this has been the main reason why the bourse which was growing by as much as 35% per month last year is running out of steam.

Leonard Makombe/Benard Mpofu