HomeBusiness DigestThe return of foreign money to the bourse

The return of foreign money to the bourse

THE ZSE has had a good run over the past fortnight with the week ending October 22 recording a hefty gain of 5,53%.

This was in addition to the 1,6% recorded the previous week. On a month to date basis to 26 October 2010, the industrials have amassed 7,6% in the process reducing the year to date losses to just 2,97%.
The market capitalisation has also benefited from this bullish trend advancing 10,81% for the month to settle at US$3,702 billion. To put this into perspective, out of the 18 trading days in October so far only five days have closed on the downside.
Market breadth for the month to date is also positive with 40 risers, 22 fallers and 14 static counters. Best five performers for the period were Steelnet, which doubled to 0,2 cents, ZBFH, Hwange, Zeco and AICO. The latter four had gains of between 34,7% and 53,8%. At the bottom of the performance table were Interfresh, Ariston, Pelhams, PG Industries and Interfin.
The bullish trading is being driven by the return of foreign investors to the local bourse. Of the total turnover of US$24,1 million that was injected into the market since the month began US$16,8 million, which equates to 70%, came from offshore investors. Selective buying has been evident on the market as most of these funds are favouring heavyweight counters particularly Delta, Innscor, Econet and Hippo. Amongst the large caps, gains in October alone ranged from 9.5% to 33,3%.
The current run is special because this year the market has generally been quiet as it was being weighed down by negative developments like political uncertainty and the policy that foreign companies operating in the country should offer at least 51% of their shareholding to indigenous investors. Many counters have been trading with Relative Strength Index (RSI) levels below 30, which, amongst chartists, is seen as a strong indicator of being oversold. A correction has been due for a long time but was delayed because local investors do not have money to make new investments. So the return of foreign funds is a big relief to the market.
If the upcoming results for the periods ending August/September come out above market expectation then this positive run might well continue.  In normal economies positive results ideally drive up the markets. US markets, for instance, that had been wobbly due to the effects of the Great Recession came to life after the release of better- than- expected financial results in the third quarter of 2010. The Dow Jones Industrial Average is so far up 3,5% since the beginning of October whilst the FTSE and Nikkei have put on 2,9% and 0,1%, respectively.
Locally, the market eagerly awaits the interim results from Econet, OK Zimbabwe, Delta, Seedco and AICO to name but a few. Econet financials are expected to be good as the company benefits from its expansionary programme of increasing its network coverage and subscriber base. Average Revenues per user which were US$17,97 in the full year to February 28 2010 are nonetheless expected to come down to regional levels of below US$10. The effects of the mobile broadband that was launched last week together with the impact of per second billing will only be felt in the full year results to February 28 2011.
On OK Zimbabwe, investors would want to assess the success management has had in trying to turn around the fortunes of the company using the US$20 million it raised in March this year. Also under spotlight will be any progress the company would have made in reducing shrinkage levels as well as recovering the market share that is now in fragments due to increased competition, a development that has put pressure on margins.
Delta is another counter whose results are keenly anticipated with sales volumes projected to be higher as a result of the addition of new packaging lines. The group embarked on an ambitious US$160 million capital expenditure programme over three years. During the past six months, the company spent US$30 million on upgrading its production lines. Major projects include the installation of the PET line and two lager lines. The upward revision to the GDP figures should also impact positively on company revenues as there is a positive correlation between economic growth rates and the consumption of beverages.
There is very little to look forward to on the mining counters as most of them are struggling. However, the sector in general is tipped to grow by more than 30% driven by increasing activity in gold, platinum and chrome. The talk about large mining houses in the country mulling listing as a means to comply with indigenization directives is generating some excitement on the local bourse. This is because the available mining counters do not have any exciting prospects.
Likewise, not much is expected from the pair of Seedco and AICO owing to the seasonal nature of their business. The first half of the year is usually cost accumulation for AICO as it will be distributing inputs to farmers. Seedco, on the other hand, will have a high cost structure during the first half as it acquires seed crops from the farmers.
Should the earnings season kick off with positive results at a time when foreigners are still present in the market, then we could expect the firm market trend to continue. Any positive improvements in sentiment on the political front — though seeming largely unlikely at the moment — will be an added bonus for equity investors.

Kumbirai Makwembere

Recent Posts

Stories you will enjoy

Recommended reading