LISTED firms are expected to report weaker earnings as bearish sentiments persist on the Zimbabwe Stock Exchange (ZSE) ahead of the reporting period, a local brokerage firm says.
In a report titled Zimbabwe Economic Review & 2016 Outlook, MMC Capital said Zimbabwe requires a stimulus package to quicken economic growth seen by the World Bank slowing down owing to weakening commodity prices and depreciating regional currencies. Several companies are from this month expected to release financials for the year ending December 31, 2015.
Headwinds headlined the performance of the ZSE in 2015 with most institutional investors such as pension funds reducing their exposure to equities as they revised investment portfolios. Earnings were lower as revenue declined on the back of weakening demand.
“We expect economic headwinds to continue mounting in 2016, hence impacting negatively on the upside potential of the market,” said MMC.
“Economic theory stipulates that there is a strong positive correlation between stock market performance and economic growth and since there is no economic stimuli in sight, activity on the ZSE will continue to be depressed.”
“On the back of the persistence of liquidity challenges locally, trades on the local bourse will mainly be propelled by foreigners and trading will be concentrated in blue chip counters which are dear to them. We have witnessed companies reporting depressed earnings in 2015 and our view is that the trend will likely continue, hence valuations will reflect declining corporate earnings.”
Despite a floundering economy, MMC said, banking counters were this year expected to be resilient due to confidence-building measures announced by the Reserve Bank of Zimbabwe.
“Participation on the bourse, continued to be dominated by foreigners, commanding 56% of the trades in 2015 up from the 53% achieved in 2014. Foreign sellers outweighed buyers, with the ratio of foreign purchases to total turnover at 27% (32% 2014) while foreign sales to turnover ratio also increased to 28% (21% 2014),” the report further reads.
The value of shares bought by foreigners also dwindled from an average of US$24,5 million per month in 2013 to an average of US$23,8 million per month in 2014 before falling further to an average US$10 million per month in 2015. In the first month of 2016, the value of shares bought by foreigners stood at US$5,2 million, the lowest since June 2010’s value of US$4,9 million.
“Foreign portfolio flows into the country have been unstable as mirrored by the trend of the foreign purchases to total value. The ZSE’s capacity to attract foreign portfolio flows was at its uppermost in February 2015 (US$26 million) compared to any other month to December 2015 and the lowest purchase was in March (US$13,8 million). Foreign portfolio outflow was high in April (US$27,2 million) and at its lowest in July ($6,49 million).”
The ZSE market capitalisation has declined steadily since the July 2013 harmonised elections that ended a shaky five-year power sharing agreement between the MDCs and Zanu PF, mirroring acute liquidity constraints and lack of appetite on the lacklustre bourse.