THE New Year had begun on a good note in terms of stock market performance. There is a lot of optimism with regard to the country’s economic prospects. Government is predicting a GDP growth rate of 10-15% from the initial estimate of 9,3% in 2011.
Agriculture and mining are expected to continue anchoring the growth of the economy with expected growth rates of 19,3% and 44% respectively. The Monetary Policy Statement presented on the 28th of January also cemented the fact that the economy will continue to expand.
As is the norm positive economic growth prospects are likely to result in positive performance on the capital markets. This optimism filtered through the ZSE as January was fruitful for punters on the equity market with the mainstream index gaining 6,5% despite the uncertainty on the political front. Minings were even stronger jumping 8.19% on the back of Hwange which amassed 15,3%. Several factors however pointed to impending weakness in the market.
Financial results published were not so encouraging and speculation on elections being held in the first half of 2011 increased uncertainty. Furthermore, indigenisation and economic empowerment regulations continued to hang over the market.
The move by authorities to allow foreign investors to take up controlling stakes in Premier Banking Corporation and Ziscosteel was probably viewed as an indication that empowerment authorities are willing to compromise, thereby renewing foreign investor appetite for shares.
Monthly turnover improved by 15% to US$31,9 million. Market breadth for the month was however negative with 24 gainers, 43 decliners and 9 static counters. Gains were mainly centered on the heavyweight counters as these are the most preferred by foreign investors. Seedco gained 29,9%, Innscor advanced 20,0% whilst gains of 12,9%, 11,9% and 11,8% were recorded by Delta, Meikles and Dairibord, respectively.
The top performers on the ZSE for the month were made up of mid and small caps. This is due to their volatile nature which offers trading opportunities. Celsys topped the performance table with a gain of 62,5%. Powerspeed was in second place with a gain of 53,3%.
Appetite for the counter increased after it published its full year results to 30 September 2010 in which it showed a profit after tax of US$294,305. The trio of Cafca, Pelhams and Pearl completed the top five movers with gains of 50,0%, 38,9% and 35,7%, correspondingly. Worst performers for January were made up of Gulliver, Border, Willdale, General Beltings and Star Africa which shed between 52,4% and 28,6%. Gulliver continues to suffer from a high cost structure together with depressed activity on the construction sector which resulted in the company reporting a full year loss of US$2.7 million as at 30 September 2010. Working capital was negative at US$3,7million.Restructuring plans that were expected to result in the company merging operations with Apex are believed to have collapsed.
Very few companies published results with notable ones reported by Phoenix and TSL for the twelve months ended 31 October 2010. Phoenix managed to break even closing the period with total comprehensive income of US$197 000 which equated to an EPS of US 0,23 cents. TSL recorded a 17% dip in profits to US$2,4 million with operating margins shrinking by 23%.
This was despite a 59% growth in revenues to US$37,3 million. Performance was weighed down by finance costs that shot up 882%. The solution for TSL going forward could be to refocus its business operations by disposing of some of its loss making units.
On the global front, the upward trend in gold and silver came to a halt as investors became optimistic about prospects for the global economy in 2011 thereby reducing the precious metal’s safe haven appeal. Silver was the weaker plummeting 7,9% for the month to close at US$28,21 whilst gold eased 6,2% to US$1333.
Equity markets in the US firmed on the back of positive fourth quarter earnings among reporting companies. Markets in Europe were also positive in January as debt problems appeared to have been brought under control. EU ministers indicated that they were prepared to increase the European Financial Stability Facility (EFSF) to US$440 billion, from around US$250 billion.
The EFSF is a special purpose vehicle created by member states of the European Union. The fund is aimed at preserving financial stability in Europe by providing financial assistance to Euro zone states in economic difficulty.
Disappointingly February has so far failed to mirror January as political events unfold, increasing uncertainty.
These have been too glaring to ignore or discount as was the case in January. The mainstream industrial index has shed 2,09% as at the 16th of February narrowing the year to date to gain to 4,27% from 6,50% end of January. The GNU supposedly has expired
and the nation waits anxiously for further communication by the authorities on the way forward. Uncertainty is likely to constitute a growing challenge to continuing market gains. Nevertheless, trading opportunities are likely to emerge in a volatile market.