On all fronts, the three months to September 30 were, surprisingly, the best that punters on the Zimbabwe Stock Exchange (ZSE) have enjoyed since June 30 2011. No one anticipated the bullish trend, as next to nothing on the ground had improved.
Report by By Kumbirai Makwembere
Talk of indigenisation was still high, with focus on the banking sector; the constitution-making process was progressing at a snail’s pace; and all the parties in the inclusive government were at loggerheads over the draft constitution prepared by Copac.
Furthermore, in July the Minister of Finance revised downwards GDP growth from 9,4% to 5,6%. To sum it all, most of the financials that were published by companies were below expectations. Company results exhibited signs of stress in the form of declining profits whilst other firms that were previously in profitable positions were now in the red.
Surprisingly, market returns were positive, with the mainstream index posting a massive gain of 10,64%. This is the first positive quarter since June 2011 when the market started trending downwards. August was the only negative month, shedding 0,49%, with gains of 0,73% and 10,38% being achieved in July and September, respectively.
Only two days closed on the downside the whole of September and activity was concentrated on the heavily-capitalised counters. For the month, Aicowas moved up 64%, BAT jumped 31,8%, Innscor put on 22% and the pair of OK and Delta advanced 19,7% and 9,9%, respectively.
Overall, the best performing stocks for the quarter included Star Africa, Rio Zim, Afdis, BAT and Falgold and these had gains ranging between 185,7% and 61,3%, respectively. The movement on Star Africa was rather surprising, considering the negative update at the company’s annual general meeting (AGM).
Management confirmed the company was still saddled with debt exceeding US$30 million and production had been scaled down significantly due to working capital shortages and the need for new machinery at the refinery. The movement might, however, indicate the market is in support of management changes that took place at the company.
Pattison Sithole stepped down and was replaced by Sam Mushiri, a former Delta executive. Another ex- Delta executive, Joe Mutizwa, was also appointed to the company’s board in the period and was subsequently appointed as board chairman at the AGM.
Afdis likewise benefitted from the Delta magic as the market welcomed the appointment of Cecil Gombera as the company’s chief operating officer and from the improved performance which was a product of the turnaround strategies implemented by Mushiri before taking up his current assignment at Star Africa. BAT put on 65% after releasing a stellar set of results in which it declared a hefty dividend of 23 US cents per share.
RioZim benefitted from the strong appetite in the market place, particularly in September. Speculation is that there is a foreign investor who is interested in taking a stake in the heavily- indebted mining company. It is hoped that should this be true, then there may finally be a workable solution to the company’s ballooning debt.
Falgold, on the other hand, firmed after releasing a good set of results in which profits for the six months to June 30 2012 came in at US$3,2 million compared with US$763 020 recorded in the six months to June 30 2011.
Furthermore, news that the major shareholder New Dawn intends to delist Falgold through issuing one New Dawn share for every five Falgold shares, or a cash consideration of 20 US cents per share, supported the price. New Dawn will then be listed by way of introduction on the ZSE. Gains on these two counters saw the resource index gaining 26.8% for the quarter.
On the global front, equities were also solid in the quarter under review despite economic reports that were released pointing to slackening growth across the globe.
Activity in the Asian manufacturing sector continues to shrink owing to reduced product demand from a Europe that is battling to control its debt crisis. Central banks had to resort to quantitative easing, with the European Central Bank taking the lead.
The FED followed suit by implementing Quantitative Easing 3 (QE3) that will see the bank injecting US$40 billion into the economy each month through buying mortgage-backed securities for an indefinite period. Furthermore, it highlighted that it will continue with ‘Operation Twist’ for the remainder of the year and will maintain the low interest rate regime until 2015. Bank of Japan was next in line, increasing its asset purchase plan by 10 trillion Yen (US$125 billion).
Going forward, investors in overseas markets will have to contend with slowing growth. The economy remains in trouble but investors might still benefit from QE3 liquidity. Orders for durable goods in the US fell 13,2% in August, the biggest drop since January 2009, when the country was in recession. This coincided with the downward revision of the country’s second quarter GDP growth rate from 1.7% to 1,3%. Unemployment remains high, with the jobless rate for the Eurozone at 11.4%, whilst that of Spain is currently sitting at 25%. The unemployment rate in the US has remained above 8% for the past year.
Coming back home, the performance exhibited in the third quarter now makes it difficult to project how the fourth quarter and the overall outturn for 2012 will be. However, chances are high that the outcome in the fourth quarter will be negative as fundamentals on the ground are still depressing.
If anything, uncertainty on the political front has increased, with possible election dates being thrown around. Liquidity in the business environment has further tightened.