ZSE continues to struggle

GONE are the days when Zimbabwe’s economy was crumbling while the share speculator was earning returns above inflation, keeping up much better than most ordinary citizens.

It is universally accepted that events that stimulate Gross Domestic Product (GDP) –– a country’s wealth –– inevitably drive stock prices up, and any event that hurts GDP growth pulls stock prices down.

On the contrary, share prices were rising while the economy was showing no signs of recovering.
The value of trade on the local bourse had been declining since June. Last week the value of trade on the stock market declined to US$7,399 million from US$11, 088 the previous week.

This week the market opened subdued with most companies saying they were waiting for the contents of the mid-term fiscal policy.

Figures from the stock market this week showed that ZSE, a key economic indicator, has continued to struggle.

On Monday, the industrial index opened the week slightly lower at 123, 68 points after losing 0, 57 points (0, 46%).

The mining index dropped 3, 02 points (2.33%) to close at 126, 87 points due to RioZim which shed 3 cents to close at 202 cents and Hwange slipped a cent to close at 21 cents whilst Bindura and Falgold were unchanged.

On Tuesday, the industrial index came off 0, 43 points (0, 35%) to close at 123, 25 points. The mining index recorded its lowest since 21 April 2009, closing at 122, 96 points after shedding 3, 91 points (3, 08%).

Kingdom Stockbrokers (KSB) said most foreign traders, particularly those whose appetite for risk is generally on the lower end, had shunned the stock market for less risky investments.

“Volumes of trade from foreign investors have therefore remained relatively more subdued than expected, a development that has also led to depressed activity on the Zimbabwe Stock Exchange,” said KSB.

Zimbabwe Allied Banking Group stockbrokers said local traders, mindful of inherent risks affecting companies listed on the Zimbabwe Stock Exchange (ZSE), are choosing to keep their cash.

“Uncertainty about Zimbabwe’s future political situation, the apparently unclear indigenisation and economic empowerment regulations and the subsequent liquidity crunch prevailing on the market, amongst other major factors, are responsible for the lacklustre performance of the local bourse,” said KSB.
Analysts said during times of increased uncertainty, traders who are assumed by the popular capital asset pricing model to be generally risk averse in nature prefer to stay in near cash securities. As a result most funds that could have been invested on the local bourse are being directed towards the money market which offers less risky asset classes.

The liquidity crisis on the market is also said to be affecting the performance of the local bourse.

The stock market had been a prime beneficiary of any monetary expansion. Fresh money enters the economy first through banks and other financial entities that may invest it in shares, or lend it to others who buy shares. Thus, stock prices rose above prices of food and other investment vehicles and outperformed them.

 

Paul Nyakazeya

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