ACTIVITY on the Zimbabwe Stock Exchange (ZSE) has dipped by 9% on a year-on-year basis as volumes on the bourse continue to be restricted by the tight liquidity situation, the absence of long-term domestic institutional investors and weak foreign investor sentiment.
Report by Staff Writer
According to the latest statistics from the ZSE, the cumulative volume of shares traded in the nine months to September was 3,02 million shares against 3,34 million shares that were traded in the comparable period last year.
The number of transactions was also down in tandem to 16 262 from 25 080 recorded last year.
However, the total value of transactions for the nine month period was up a marginal 1,5% to US$357 804 million from US$352 379 million in the comparable period, driven mainly by foreign purchases of shares which amounted to US$161 144 million from US$140 033 million.
While trading volumes have been relatively light, trades have been restricted to the heavyweight counters and dividend paying shares such as Delta, Econet, Innscor and Old Mutual.
The momentum has also been powered by a few stockbrokers who have handled the lion’s share of trading on the stock exchange.
Recently the stock market has been rising, but according to analysts, having few trades powering a rally is a problem because when the rally fades, there will not be enough buying power to keep the uptrend in place.
Local institutions and individual investors continue to be affected by the lack of liquidity whilst the majority of institutional investors have shifted to holding on to equity investments for the long-term. Generally, the stock market is the first institution that gets drained out when liquidity is tight.
Market analyst Joanna Hwata said generally institutional investors paid less attention to the market in the absence of new stimulus and therefore would invest less as the year progresses.
Analysts say market direction since last year was being driven predominantly by global developments and sentiment rather than local fundamentals.
The major impact of emerging market sovereign debt concerns on the ZSE was not as direct but rather indirectly impacted on by a change in global risk appetite and the impact on capital flows especially in days dominated by the euro zone crisis.
Sentiment mainly by foreign investors, who are the main participants on the stock exchange, has driven investment into traditional safe havens such as the US dollar and gold and also into high risk high return areas in emerging markets such as the ZSE.
Private equity funds are setting up shop in Africa, attracted by a growing urban population and expanding middle class as well improving governance, political stability and sound economic management.
While it is possible to achieve good rates of growth in emerging markets such as India, South Africa and Turkey, growth in more mature markets is harder to come by. This means most companies in the UK, USA and India and China have to manage their costs and do more with less to stop profits falling.
In the long run they have to expand into Africa where there are opportunities to grow their revenues and profitability. This is why Essar, Development Bank of Southern Africa, Industrial Development Corporation South Africa, GEM and other private equity funds are trying to invest in Zimbabwe.
Emerging markets investors would want to deal with big and stable businesses, which have dividend policies.
Analysts say this is what Delta, Econet, Innscor and the other stable counters offer. The companies have a good market share and post good quality earnings.
Investors need a stable dividend payout and the blue chip companies that pay large dividends are one of the favoured investments.
“This is because you are getting a large part of your investment return from dividends –– which are independent of the Zimbabwe stock market’s mood swings,” an analyst said. “A number of ZSE-listed companies, with adequate funding have proven to be quite resilient investments. Before the lost decade they showed the ability to pay dividends from cash flow because of a healthy free cash dividend cover.”