Will 2011 be any different from 2010?

AS the curtain comes down on 2010, investors look back and evaluate their current investment positions digesting over the profits or losses they would have made.  For 2010, there is not much to talk about in terms of the local markets’ activity. Both the market and equities market were stifled of liquidity.

Activity on the latter was continually affected by the entry and exit of foreign money.  One can safely say that it took a shrewd investor or fund manager to make money on the local stock market.  Overseas markets also required even greater shrewdness though the underlying fundamentals were different to those pertaining on the local market. International markets were still recovering from the effects of the global economic crisis. Fears of a double dip recession were aroused again with the emergence of debt problems in the euro zone. Resultantly a lot of investors preferred gold as an alternative investment which saw the price of gold reaching an all time high of US$1 430,95 per ounce.
The uncertain political climate anticipated in 2011 has already started to impact on the market. Since dollarisation, foreign investors had been net buyers of shares being offloaded by locals. Participation of foreign investors, notwithstanding the holidays, has been reduced thereby depressing stock prices that had begun to pick up momentum in September and October.  However since the beginning of November the market has been sluggish as there have not been signs of significant foreign money clearly showing how foreign investors are sensitive to the country’s economic and political news.
There is no guarantee that activity will shift up significantly, if at all, come 2011.  Fundamentals in play indicate that the stock market will likely be starved of liquidity as foreigners take a back seat as political events unfold. Going forward the stock market is likely to be a traders market as they are very few fundamentals to support any trade.
Due to the uncertainties on the stock market, a lot of investors have been opting to invest on the local money market. Investment rates have not been very competitive but at least the investor is guaranteed of capital preservation. Assuming that liquidity is not going to improve much if at all for the country in 2011, no significant changes in terms of interest rates will be expected on the money market. 
Sadly 2010 did not end as expected on the economic front, with industry capacity utilisation closing at 43% against an expected 60%.  Shortages of liquidity are likely to continue depressing activity and 2011 is not expected to be much different.  Funding is therefore expected to continue being expensive hence weighing down on the profitability of companies.  Most companies reported that local funding is costing an average of approximately 18% per annum.  Few companies have managed to access cheap funding from institutions such as Afreximbank and PTA. The local bourse is again likely to be flooded by a number of capital raising initiatives with those companies that secured funding in 2010 likely to come back for more.
Art, for example, undertook a rights issue during the first half of 2010 which was used to repay debt amounting to US$3,9 million.  It was surprising that their borrowings as at September 2010 stood at US$8 million putting the company in an even worse position than before the rights issue. 
Star Africa reported a dismal set of results even after raising US$20 million through a combination of debt and equity. RioZim, on the other hand has not been successful in raising approximately US$40 million to capitalise the business.
With all these ups and downs of 2010, 2011 might be even more challenging for both local companies and investors. Already Finance minister Tendai Biti has admitted that 2010 was a tough year.  He further indicated that 2011 might be worse considering the political events planned for the year.

 

 

By Linda Tsarwe