The Zimbabwe Stock Exchange’s (ZSE) performance this year is expected to remain subdued on the back of liquidity constraints, and faltering industry capacity utilisation, as escalating economic headwinds and waning government revenue continue to hamper sustainable economic recovery.
Latest statistics paint a gloomy picture of the bourse amid indications over US$800 million in shareholder value was lost on the ZSE in 2014 alone, as the exchange took a battering from the declining economic environment.
According to statistics on ZSE, US$876 million in shareholder value was lost in 2014, reflecting a tough year for the bourse as the value of shares that exchanged hands dipped 6,7% in 2014 to US$452 million from US$485 million in 2013 despite the increase in the volume of shares.
The number of shares that exchanged hands went up to 3 179 300 954 last year from 2 996 886 088 in 2013.
ZSE’s market capitalisation closed the year at US$4,327 billion, down from US$5,203 billion in the comparable period in 2013.
Commenting on the poor performance of the stock exchange last year, economist John Robertson attributed most companies’ loss of shareholder value to failure by corporates to make profits.
“It’s an image of the Zimbabwean Economy. Most of the shares on the stock exchange are not paying dividends to shareholders. The dividends are zero for most companies because they don’t make any profit,” he said.
“Individual shares have gone down in prices because they are not paying dividends to the shareholders. When you buy shares after so many years you realise there is no income out of it.”
A cash dividend is money paid to stockholders, normally out of the corporation’s current earnings or accumulated profits.
Oxlink Capital Managing Director Brains Muchemwa said stock prices, just like any other asset prices, are strongly correlated with liquidity. As such, the tightening liquidity situation last year had a huge bearing on the bearish trend on the ZSE, he said.
Muchemwa said although the broad money supply figures for 2014 depict a sizeable increase in domestic liquidity, the increasing banking sector Non-Performing Loans (NPLs) counteracted growth in the actual available liquidity and hence the ZSE was caught up in the crunch.
“On the other hand, the weakening economy meant that domestic demand remained subdued and as such the earnings prospects of most of the listed companies remained uninspiring, more so at a time most corporates are failing to service huge debts that are sitting on their balance sheets,” he said.
He added that for the ZSE to improve its foreign portfolio activities, there was need for policy clarity and consistency.
“Foreign portfolio inflows have a huge potential to turn the tide of fortunes on the ZSE in 2015. However the most important aspect remains issues with regards consistency on key policy matters. Of course it is important to note that the ZSE is a very shallow market and as such small foreign portfolio inflows and outflows can cause huge swings on the market capitalisation either way,” Muchemwa said.
According to the MMC capital report, the 2015 outlook for the equities market is bleak and morbid as the market will likely remain under pressure this year on the back of poor operating fundamentals in Zimbabwe.
The political infighting within the ruling Zanu PF party that has become an everyday phenomenon has become a threat and the biggest impediment to attracting investment.
“The political dust is yet to settle as evidenced by intensifying bickering in the ruling party, Zanu PF, hence putting a damper on the upside potential of the local bourse. Most investors are still waiting for clear guidance on key investor-friendly related policies such as the indigenisation policy,” MMC said.
MMC capital said foreign portfolio flows into the country in 2014 have been unstable as mirrored by the trend of the foreign purchases to total value. The ZSE-attracted foreign portfolio flows was at its peak in August (US$54 million) compared to any other month in the 12 months to December 2014, and the lowest purchase was in December (US$13,8 million). Foreign portfolio outflow was high in April (US$27,2 million) and lowest in July (US$4,8 million).
Most counters that make up the top 10 (by market capitalisation) on the local bourse traded in the red during the period under review except for Bindura, Seedco and NatFoods which traded northwards.
Telecommunications giant, Econet, was unchanged at US0,60 on year-on-year comparison. Mining company Bindura Nickel led the movers recording 220% growth to close at US$0,64 on the back of the resumption of nickel production from the company’s Trojan mine.
The informal market which has mushroomed in the capital city has become a huge obstacle to performances of clothing retailers on the Zimbabwe Stock Exchange and adversely affected clothing giants like Truworths.
“The 2014 shakers’ pack was led by Truworths which lost 88% to close at 0,5 cents. The company’s poor performance was as a result of stiff competition from the informal flea markets and the emerging fashion shops in towns which have relatively lower prices,” said MMC capital
The industrial index tumbled 19% to 162, 79 points in 2014 from 202,12 points in 2013.
The mining index, however, firmed by about 57% to 71,71 points. In 2013 the mining index was at 45,79 points.
According to the 2015 budget statement, the bourse is also working on an automation programme to improve efficiency of the automated trading system at the ZSE which is earmarked for the first quarter of 2015.
After the signing of the Memorandum of Understanding between Treasury, the ZSE, and the Securities and Exchange Commission, the demutualisation of the ZSE is set to be finalised in the first quarter of 2015.
Under the demutualised exchange, government is expected to reduce its shareholding from 32% to 16%, whilst stockbrokers will reduce their shareholding from 68% to 32%.
It is believed demutualisation would result in a well-capitalised exchange, with more flexible decision making, and one that can respond to a fast changing and competitive market.