Headwinds in key sectors weigh down stock market

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Zimbabwe Stock Exchange hitting a new low key indicators of the worsening economic crisis.

THE Zimbabwe Stock Exchange closed September in the red, falling 0,31% to end the month at a total market capitalisation of US$2,81 billion in what analysts say is a reflection of the tough economic environment which has made it difficult to attract fresh capital to stimulate production.

By Fidelity Mhlanga

The industrial index, according to Inter Horizon (IH) Securities, was down 0,30% to 98,96 weighed down by losses in Delta Beverages and Econet Wireless of 6,98% and 1,01% respectively, offsetting gains in British America Tobacco (BAT) Zimbabwe of 1,67%.

Economist John Robertson said share prices are falling because prospects of capital gains are low while there is no new investment into the country.

“Prospects of dividends being paid in this market are low because profitability is declining due to depressed demand caused by company closures. There is need for change to correct this decline, but unfortunately the government doesn’t seem to realise this and there is no sense of urgency,” he said.

Another analyst who requested not to be named said the poor performance on the stock market is an indication of the deepening economic crisis.

“The decline reflects the operational challenges bedevilling the economy,” the economist said.

In September, IH revealed, the mining index rose 1,1% to 26,61 buoyed by a 2,22% gain in RioZim.

Other notable gains were realised in Innscor Africa, which went up 19,43%. Axia Corporation surged 12,50% while Old Mutual gained 12,29%. Barclays went up 11,11% and Padenga grew by 8,57%.

Axia reported a gross profit of US$2,27 million for the three months to June 30. This is the company’s initial set of financial results since unbundling from holding group Innscor Africa in February this year. Innscor operations include TV Sales and Home, Transerv and Distribution Group Africa Zimbabwe.

Other major losses were recorded in PPC, which went down 33,33% and Dairibord Zimbabwe, which went down 20%. Art Corporation tumbled by 11,76%, while Lafarge Cement slipped 9,09% and GetBucks fell 7,5%.

Monthly turnover rose 89,6% to US$13,41 million, with average daily trades of US$609,360 realised in the period.

The most significant gains to total value traded were Delta, Innscor Africa and Econet, contributing 53%, 13% and 11% respectively.

Last week, Delta announced its South African shareholders SABMiller were acquired by Belgian firm AB InBev. Delta said the transaction is expected to have no material impact on its relationship with the South African company which owns 22,7% of the local beverage manufacturer.

Once approvals for the deal have been obtained and the enlarged group assumes the name AB InBev with headquarters in Leuven, Belgium, and listed on Euronet Brussels, the Johannesburg Stock Exchange and Mexico Stock Exchange, said Delta.

IH said the total volume of shares traded for the month of September went up 67,33% to 69,05 million.

The securities firm commended Innscor for a good set of results. Innscor said revenues went up 6% year-on-year to US$586 million buoyed by growth in sales volumes. This was despite notable price reductions across the portfolio.

IH said it believes the group’s focus on operational efficiencies will enable National Foods to further reduce their prices and compete in this space in a way that will not put major pressure on margins, adding it expects an uplift in earnings as the group scales its snacks business.

The harsh economic environment is seen shaping management decisions across industry going forward.

“As consumer incomes deteriorate we will have a preference for management teams that are best able to reduce operating cost bases in order to re-engineer pricing points to accessible levels in order to defend volumes,” added IH.

IH said the 2016 mid-year fiscal policy review statement issued last month by Finance minister Patrick Chinamasa reflected the continued fragility of the economy as evidenced by downward revisions of economic growth forecast for 2016 from 2,7% to 1,2% due to headwinds in key sectors of mining and agriculture, subdued FDI, the fiscal deficit and debt overhang.

“While there are factors beyond our control like the El Niño and low commodity prices, the depleting sources of income for Zimbabwe are of major concern; the country still faces the major hurdle of significantly growing exports in order to narrow the current account deficit which has led to the liquidity crisis,” IH said.

The report said the financial sector, which had been performing well, now faces uncertainty given perception issues around Treasury Bills due to a lack of capacity to service them as there were some “roll-overs” in July which may affect discount rates on the instruments going forward.

“We expect investor sentiment to remain negative as policy uncertainty persists exacerbated by hard currency shortages and perceptions around bond notes which are due to be released at the end of October,” IH added.

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