The mining index shed a massive 16% during the quarter after the mining sector remained under the indigenisation spotlight, a development that saw Implats, the parent company of Zimplats, forced to sell 51% of the company’s issued share capital to government. The move dampened confidence in the mining sector given that it set a precedent for all other mining firms who had not been taking the indigenisation drive seriously.
Analysts fear the move to expropriate mines will stall investment in the sector and ultimately impact on output. The mining sector has been the fastest recovering sector and is currently contributing around 13% to gross domestic product.
Industrials traded 6% weaker in the quarter owing to investor skepticism of both government policy on indigenisation and uncertainty stemming from planned elections. Market turnover totaled US$798,9 million in the same quarter largely driven by local buyers with foreign buyers totaling US$72,4 million against sellers of US$36,1 million.
Total market capitalisation decreased 6% to US$3,5 billion from US$3,7 billion at the end of the last quarter in 2011.
The impact of the current economic turmoil is significant when compared on an annual basis with the market capitalisation shedding 17% from US$4,2 million at the end of first quarter of last year. This was mainly driven by the minings which plummeted 64% and the industrials weakening by 15%.
“There has been a significant loss of value on the stock market and the current economic environment is impacting negatively in the capital and money markets since there are mainly driven by sentiment and confidence,” said an equities analyst.
Inflation was contained in the first quarter decreasing to 4,3% in the month of January from a peak of 4,9% in December 2011. The inflation rate remained unchanged at 4,3% in February on the back of a slowdown in demand of goods and services post the festive season hype which ultimately led to prices retreating.
Going forward, the stock market is expected to remain depressed amid growing concerns of elections being held this year and indigenisation threats.
But analysts said that growing uncertainty would cause prices of stocks to trade at low levels, adding this presented opportunities for long-term buyers to increase their portfolio holdings in strategic companies. Other analysts said serious liquidity challenges in the first quarter which prompted the central bank and the Finance ministry to impose regulations for international banks to repatriate nostro balances also worsened the situation.
But the move was received with huge resistance as most banks raised concerns over how there were supposed to channel the funds back in the financial sector citing that the RBZ might end up wiping out their idle funds given that most of the foreign banks were not employing an aggressive lending strategy.
Although RBZ governor Gideon Gono and Finance minister Tendai Biti repeatedly said the financial sector was safe and sound, signs of stress became evident in the banking sector with most indigenous banks failing to meet their customer withdrawals during the first quarter.
In the 2012 Monetary Policy Statement presented in January by Gono, undercapitalised banks were given deadlines to submit and implement their capitalisation plans and this further exacerbated the panic with depositors shipping their funds to safer and more established banks.
But renewed threats by Indigenisation minister, Saviour Kasukuwere, targeting foreign-owned banks to comply with the indigenisation regulations delayed recapitalisation plans and some undercapitalised banks only secured investors at the eleventh hour.