The bulls are back but for how long?

THE introduction of the bond notes, among a raft of measures, to plug foreign currency leakages and rising imports could help the Zimbabwe Stock Exchange (ZSE) recover in the short-term period as investors seek capital preservation, analysts say.

By Bernard Mpofu

The underperforming local bourse returned to the green in April, as it rose for the first time since February 2015. Total market capitalisation closed 7,91% higher month-on-month at US$3,03 billion.

While the development came as sweet music to investors who were considering reducing their exposure on the equities market, the slow pace in effecting structural issues besetting the economy could bring back bearish sentiments on the ZSE.

Nearly US$2 billion in shareholder value was lost year-on-year in the first quarter of 2016 compared to the same period last year as investors fretted over indigenisation regulations compelling foreign investors to sell controlling 51% equity stakes to indigenous Zimbabweans.

An analyst at FBC Stockbrokers told businessdigest that the prolonged underperformance of the ZSE and the introduction of US$200 million bond notes backed by the African Export and Import Bank by the Reserve Bank will result in risk appetite medium to long term investors taking positions as prices remain discounted due to weak economic fundamentals.

Declines in ZSE-Listed Equities have seen most pension fund portfolios taking a hit.

“Some investors especially medium and long term continue to see value in this market despite the bearish sentiments. While some may fret over the introduction of bond notes, the development could see those with fixed income opting for equities,” the analyst said.

An analyst working for a local research and advisory firm said Delta’s announcement of a special dividend to shareholders despite recording a 15% decline in after tax profit projects a gloomy picture on the bourse.

“By announcing this special dividend the company is just telling shareholders that they can make better use of their funds instead of the company holding on to them and create more value out of it,” an analyst said.

Delta revenues for the full year to March, came in at US$532,2 million, falling by 7% from US$576,6 million recorded last year. The decline is attributed to the deteriorating macro-economic environment and a slowdown in demand in the face of declining disposable incomes.

The group declared an annual dividend of US3,75 cents per share, a 3% increase from the US 3,7 cents declared during the same period last year. Shareholders were also awarded a special dividend of US0,95 cents per share.

ZSE deputy chairman Bart Mswaka contends that measures announced by government and reforms made by other regulators in the capital markets could spur growth for the ZSE.

“ZSE, therefore, is bullish about the future in these bearish times with concerted efforts and goal congruence of key stakeholders such as the Ministry of Finance and Economic Development, Reserve Bank Zimbabwe, Securities and Exchange Commission of Zimbabwe, Chengetedzai Depository Company, Insurance and Pension Commission, the issuers and the business community at large,” Mswaka said in a speech on behalf of ZSE chairperson on Tuesday during the listing ceremony of Axia Corporation.

Axia, a retail and distribution business is the third company to be listed from diversified group Innscor through a dividend in specie after Padenga and Simbisa.

The listing is the fourth on the ZSE within the last 12 months.

Concerns over the indigenisation law, high labour costs among other factors has kept investors at bay while they consider other frontier markets.

The industrial index was up 8,38% to 105,79 in April buoyed by gains in all heavyweights with BAT, up 8,84%, Delta, up 24,44% and Econet, up 2,33%.

The resources index was up 3,23% on the back of gains in RioZim and Bindura of 5,77% and 2% respectively. Other significant gains for the month were seen in Proplastics, up 52,78%, OK Zimbabwe, up 4,11%, Innscor, up 17,46% and Art, up 16,67%).

The month’s biggest losers were Radar, Hippo, Ariston, Seed Co and ZPI, down 35,08%, 18,52%, 13,46%, 12,5% and 8,42% respectively.

Despite these marginal gains, activity remained depressed as turnover dropped by 14,5% in April to US$14,05 million. Average daily trades for the month came in at US$702 290.

Delta, National Foods and Econet made the biggest contribution to total value traded, contributing 38%, 10% and 7% respectively. Total volume traded rose 93,06% to 188,43 million shares.

Analysts also say despite strained corporate earnings, the market has started registering notable gains while the industrial index is expected to remain in the positive as bids improve in counters such as Delta, BAT and Innscor where valuations have started to become attractive.