THE Zimbabwe Stock Exchange could restore its buoyancy should government sell the controversial alluvial diamonds from Marange, analysts have said.
Following several months of lacklustre performance that saw close to US$1 billion worth of stocks wiped out during the first six months of the year, market watchers had concluded that the exchange would perform far below last year. For some analysts, the ZSE performance in 2009 was driven by euphoric sentiment that came with the formation of the inclusive government.
The mainstream industrial index which started the year at a high of 156, 52 had dropped to 127, 46 by June 2010, whilst the mining index fell from an opening of 209, 8 to 143, 08. This resulted in market capitalisation falling to US$3, 19 billion in June from US$3, 97 billion in January.
“For months, liquidity had become an issue that resulted in investors not making any significant gains. Stock broking firms, asset management companies and pension funds were also feeling the pinch. But the anticipated sale of diamonds could be a reprieve for the exchange,” said a stock broker who requested anonymity. Apart from liquidity problems, the exchange retreated in the first half of the year following indigenisation and economic empowerment regulations that compelled foreign-owned companies worth more than US$500 000 to “cede” a controlling interest to indigenous investors. According to Finance minister Tendai Biti, foreign investors’ contribution to market turnover fell from between 40-50% to an average 20% per month.
Financial results have also failed to lift the equity market as most companies are still undercapitalised while demand remains weak.
Of the companies that sought recapitalisation, mainly through rights issues, shareholder support averaged 50% with the balance being taken over by underwriters.
Hope now lies with the anticipated windfall from the sale of gems which is likely to relieve an otherwise dry market. Last year, Zimbabwe exported 1, 34 million carats of diamonds valued at US$28.9 million, giving an average price of US$21, 42 per carat.
This was significantly lower than global average of US$78.70 per carat that prevailed throughout the year.
Most of the diamonds exported last year were from River Ranch and Murowa Diamonds.
However, with a stockpile of six million carats of the mineral from Marange and the country’s annual average, it is expected that US$128.52 million would be realised from the disposal expected next month.
Figures could be higher as the Zimbabwe Chamber of Mines estimates that the country’s diamonds could fetch as much as between US$100 and US$120 per carat.
Mbada and Canadile, the two mining companies which have partnered the Zimbabwe Mining Development Corporation (ZMDC) estimate that for every dollar that is realised from the diamonds extracted in Marange, 80 cents goes to treasury.
Leonard Makombe/ Bernard Mpofu