ZSE bear market reflects recession

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THE local equities market, Zimbabwe Stock Exchange (ZSE) — a leading barometer of the state of the economy — has been on a relentless bearish run for seven consecutive months to September, reflecting the current economic recession.

Bernard Mpofu

Zimbabwe is now technically languishing in the depths of a recession after experiencing more than two successive quarters of negative growth. Trade and industrial activities have seriously declined amid massive company closures and job losses.

Deflation, a general decline in prices largely caused by a reduction in the supply of credit due to the liquidity crunch, has also worsened the situation.

ZSE market capitalisation plunged to US$3,4 billion after shedding nearly US$2 billion as at September 30 2015 on a year-on-year basis, weighed down mainly by the poor performance of blue chip counters, latest stock market data shows.

“The market maintained a downward trend month, falling yet again for the seventh month in a row; total market capitalisation closed 3,10% lower at US$3,63 billion,” securities trading firm, Inter-Horizon Securities, says in its latest research note.

“The Industrial Index fell 2,58% to 131,93; heavyweight counters recorded losses across the board with Delta down 2,34%, Econet down 4,64% and Innscor down 0,84%.

“The Mining Index lost a significant 31,07%, weighed down by a 50% loss in Binudra. Top gainers for the month included Falgold up 25%, Fidelity Life up 15,38%, CFI up 13%, Turnall up 11,11% and DZLH up 10,93%. Among top fallers; Zimplow down 33,33%, African Sun down 20,80%, Radar down 17,33% and Meikles down 16,67%.”

The brokerage firm adds: “Activity improved in September with turnover rising 13,04% month-on-month to US$17,37 million; average daily trades in September came in lower at US$0,79mn however, due to less trading days in August.”

This came as government dispatched Finance minister Patrick Chinamasa and Reserve Bank of Zimbabwe governor John Mangudya to Lima, Peru, to attend World Bank and IMF annual meetings today with a strategy to clear arrears in a bid to secure fresh funding.

Zimbabwe’s external debt stands at US$10,8 billion, of which US$6,8 billion is public, while the remainder is a private sector debt. The private sector is paying its obligations on schedule, while government is failing to repay.

The country owes multi-lateral institutions, the IMF, World Bank, African Development Bank (AfDB) and European Investment Bank, as well as the Paris Club — an informal group of creditor nations — and bilateral debts to countries like China and others.

The Zimbabwean government has an uphill task to raise US$1,8 billion from financial institutions or development partners across the world by year-end as part of efforts to unlock fresh funding.

Although the AfDB has committed to a US$601 million financing scheme to help clear government’s arrears by December 2016, Harare wants to make good on the deal, together with two other related transactions to pay arrears owed to the IMF and the World Bank by year-end.

Zimbabwe owes US$1,4 billion to the World Bank, AfDB US$639 million and IMF US$124 million.
During the ZSE trading period under review corporate earnings continued to show headwinds in the consumer environment; indicating weakening aggregate demand. Innscor, which became the first listed concern to breach the US$1 billion mark in revenue, reported a 6,5% fall in income as volumes and average prices contracted.

The IMF has cut Zimbabwe’s economic growth forecast to 1,5% from the initial projection of 2,8%. This came after Chinamasa in July also revised Zimbabwe’s economic growth rate from 3,1% to 1,5%. Independent analysts project a 0,9% growth rate. “Corporate earnings continue to show headwinds in the consumer environment; Innscor reported a 6,5% fall in revenue as volumes and average prices contracted,” IH Securities says.

An analyst said the ZSE performance mirrors the current state of the economy.

“The stock market is a leading indicator for the economy, so a bear market, characterised by a general decline in trades over a period of time, reflects poor economic performance and underlying problems,” the analyst said.

“The reality is that bear markets do not just pop out of the air. They are caused by liquidity problems, recessions, and other factors. Of course, the stock market can also go down when there is no recession, but as a loose rule of thumb, you can say that historically most stocks lose half their value in the average bear market. In other words, bear markets can cause serious economic haemorrhage as we can see through ZSE.”

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