Much doom and gloom at the ZSE

By Kumbirai Makwembere

GLOBAL equity markets were surprisingly positive in the first half of 2012. As the year began, fears over the health of the global economy were high, emanating from the debt problems in Europe which compelled the IMF to lower growth forecasts for the global economy from 3.9% in 2011 to 3,5%.

Furthermore, the slowdown in manufacturing recorded in Asia, US and Germany dampened hopes of a favourable outcome for equities. The US job market again remained in the doldrums with the unemployment rate remaining stuck at 8.2% whilst it hit a record high of 11,1% in the Eurozone.
Contrary to expectations, the major markets were positive, with the Nikkei in Japan being the best performer by recording a jump of 6,52%. The S&P 500 was next in line, with a gain of 5,68%, whilst the duo of the Dow Jones and the FTSE 100 rose by 2,57% and 1,57% respectively.

 

The JSE, which often mirrors the performance of overseas markets, posted a gain of 5.39%. Equity markets benefitted from inflows of funds from other asset classes as commodities and currencies amidst a gloomy outlook. Gold, surprisingly, lost its safe haven status and is now in actual fact regarded by many as a risky asset as it is tracking the Euro. Platinum and Nickel are on the other hand suffering from reduced demand from Asia largely due to the slowdown being experienced in the manufacturing sector.
Whilst punters on the global scene had something to smile about, the same cannot be said for the locals.
ZSE maintained its path of destroying investors’ wealth, losing 9,53% during the six months to June. February and May were the only positive months with gains of 5.42% and 1.19% respectively. March had the worst loss of 6.35% whilst January, April and June recorded declines of 5.03%, 5.27% and 0.05% respectively. If anything, risk aversion among offshore investors remains high.

 

The ongoing drive to indigenise foreign-owned banks, together with the gazetting of regulations to indigenise the remaining sectors of the economy, amongst them private schools, will not do the markets any good. This is in addition to uncertainty as to when elections are going to be held. Furthermore, the bulk of the companies on the local bourse are riddled with debt and performing below par. If there was a fear factor index for the ZSE, it would be interesting to see where it would be trading currently – our bet is that it would have shot through the roof by now!!
The resource index sank deeper in the red by 24,83%, dragged by a 42,5% loss in Hwange and a 14,29% decline in Rio Zim. Hwange management recently revealed at their AGM that talks with Development Bank of Southern Africa(DBSA) had collapsed and they are pursuing a US$50 million facility with PTA. RioZim on the other hand is still to come to the market with a concrete plan of how they intend to turn around company operations. The company needs a huge cash injection which market rumours allege the new main shareholders, Gem Raintree, are incapable of providing.
Overall, market breadth comprised 29 gainers, 44 decliners and two static counters. The top five performing counters were Falgold, General Beltings, Afre, Zeco and Ariston. These had gains ranging from 158.3% to. Falgold has become a market darling ever since it completed phase 1 of its recapitalisation exercise which resulted in production and profitability improving.
The Afre share price on the other hand responded positively to the acquisition of a controlling stake in the group by NSSA which ended years of tuckshop management at the company. We are however not sure what the reasons pushing up the prices of the trio of General Beltings, Zeco and Ariston are as their operations are still struggling.

Could it be the respective companies pushing up their share prices so that their counters attain a market capitalisation above US$1 million, the minimum threshold alleged to have been set by the ZSE for all listed companies?
The bottom of the table was made up of familiar candidates, with losses ranging between 56,5% and 95%. Chemco was the worst performer, and TSL, its holding company, has since resolved to delist the struggling unit. Murray and Roberts’ loss since the year began stood at 56,5%. Over the period, the Securities Exchange Commission (SEC) reversed the acquisition of a controlling stake in the company by Zumbani Capital, a consortium led by the current board chairman, Paddy Zhanda, and former company chief executive Canada Malunga, arguing that the transaction was done at a steep discount of 79% and that an offer should have been made to minority shareholders
The suspension from trading on the ZSE of Interfin, alongside Gulliver, was the main highlight on the corporate front. It is alleged that the latter failed to publish its results within the time frame stipulated by the ZSE while the ban on the former was a result of the placing of its flagship asset, Interfin Banking Corporation, under curatorship for a period of six months. This was after investigations by the Reserve Bank of Zimbabwe revealed that the bank had negative equity of US$93 million against regulatory requirements of US$12,5 million, largely due to poor corporate governance structures and abuse of depositors’ funds, together with a high level of non-performing insider loans—hardly a surprise to the market.
Where should investors place their money now? As it stands, the equities market is likely to continue disappointing till the year ends. Outlook for the listed entities is not so promising as the bulk of them are heavily borrowed; hence will continue incurring heavy finance charges.
The slowdown currently taking place in the broader economy is again likely to impact negatively on company performance. Trading on the overseas markets is expected to remain volatile as debt problems in the Eurozone seem to be far from over.
In the past week, the People’s Bank of China and the European Central Bank slashed their bank rates by 0.31% and 0.25% respectively. The Bank of England on the other hand increased its asset purchase plan by £50 billion (US$77,54 billion) to £375 billion (US$581,55 billion). Will these measures be enough to prevent the feared double dip recession?