Equities up as fund managers ignore bond notes

Shares ignored the promulgation of a law compelling Zimbabweans to accept an unpopular currency being promoted by the central bank this week and ploughed back into selected counters as bond notes loom large.

By Chris Muronzi

The move saw the key Zimbabwe Stock Exchange (ZSE) industrial index rise 0,30% on Monday to close at 120,82 points while the resources index remained flat at 33,76 points.

StarAfrica gained 18% to close at US0,98 cents. Delta also kept the momentum, gaining 1,1% to close at US72,82 cents.
Mash also gained 0,6% to close at US1,70 cents on the same day.

Although most counters remained unchanged, the gains were enough to push the mainstream industrial index in positive territory.

The trend continued the following day. On Tuesday, ZSE grew by 0,007% buoyed by acquisitions in Mash, Rio Zim, Colcom and Delta up 6,25%, 2,43%, 0,65% and 0,25% respectively.

CBZ led the losses on the same day. The counter lost 0,48% to close at US10 cents.

Old Mutual also declined 0,10% to close at US3,2 cents.

The ZSE has been rising since late September as fund managers rushed to liquidate cash and near-cash positions.
On Wednesday, the mainstream industrial index shed off 0,55% to close at 120,23 points after Econet lost 10% to close at US27 cent owing to weak corporate earnings.

Econet Wireless Zimbabwe Limited’s profit after tax declined by 37% to US$14,9 million in the half-year-ended August 31, due to the declining revenue attributed to the deteriorating economic environment.

In the same period last year, profit after tax was US$23,8 million.

The local bourse gained 22% on a quarter-to-date basis. But on a year-to-date basis, the ZSE has gained by only 5%.

President Robert Mugabe this week gazetted Statutory Instrument 133 of 2016 (SI 133 of 2016), which provides a legal framework for the introduction of bond notes as an acceptable legal tender in Zimbabwe. SI 133 of 2016, Presidential Powers (Temporary Measures) Amendment of the Reserve Bank of Zimbabwe Act, empowers the central bank to issue out bond notes using its preferred design, form and material.

The promulgation came after Zimbabwe’s central bank chief John Mangudya in May announced plans to launch bond notes in October, which he claimed would be backed by a US$200 million Afreximbank facility at par value with the Unites States dollar.

Analysts say asset managers’ decision to snap up shares on the ZSE in the past few weeks has largely been influenced by the imminent bond notes.

Although there is strong appetite in the traditional blue chips — Old Mutual, Econet, BAT and Seedco — there is increased interest for other counters across the board.

“What we have observed is that the interest in equities has been widespread across the bourse and not limited to the counters that you mentioned,” an analyst told businessdigest recently.

“Interestingly, this interest has largely been driven by local investors while we have seen the majority of the foreign interest being on the disposals side. We are more than convinced that a surge in local demand is being spurred by the fear of the introduction of a surrogate currency in the form of bond notes.”
This, analysts say, has seen funds shifting to equities.

Fund managers, who had adopted a general wait-and-see attitude owing to the dismal state of the economy, weak investor sentiment, poor government economic policies and Mugabe’s advanced age and lack of a succession plan, have been left with no choice but to move cash into safer investment classes.

“As a consequence, we are seeing funds migrating from cash and near-cash assets into equities. This in our view has been the primary driver of the market gains and is now being augmented by returning foreign demand in selected stocks,” an analyst said.

The mainstream industrial index has been on the rise.

The stock market grew fastest in October this year, as investors shifted to equity in the wake of uncertainty around government’s plans to introduce a local currency in the form of “bond notes”.

Market capitalisation rose by 22,13% from US$2,725 billion in October to $3,328 billion, the highest since last November.

Turnover increased by 77,79% to reach an all-year high of US$23,2 million, the highest since June 2015.

The main industrial index gained 21,49% to close at 120,23 points while the mining index surged 28,15% to 34,11 points in the quarter to date.

Investors are eyeing big cap counters, Delta and Econet which advanced 21,37% and 53,06% to close the month at 72,82 cents and 30 cents.

National Foods, Seedco and Padenga also added 41,34%, 37,24% and 31,58% to trade at 300 cents, 82 cents and 15 cents in that order. BAT and Simbisa Brands picked up 22,95% and 17,5% respectively.

Among the top movers were Axia, Zim Papers and OK Zimbabwe adding 66,67%, 60% and 42,35% respectively. Colcom and Willdale also gained 40,54% and 33,33% respectively.

The insurance giant, Old Mutual which is trading at a premium, advanced 11,15% to close at 322,33 cents.