Strong demand bound to spark ZSE rally

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Discounted market capitalisations are prevailing on the Zimbabwe Stock Exchange.

…Bond notes continue receiving battering on black market

Stocks are seen rising on the Zimbabwe Stock Exchange (ZSE) buoyed by renewed interest on the local bourse following the introduction of bond notes.

By Chris Muronzi

Analysts say strong demand for shares could see buyers paying a premium for scrip on the bourse and motivate sellers. A bull run in the last quarter of 2016 saw share prices surging to new highs.

A correction of valuation multiples in Q1 saw shares come down marginally in Q1 2016.

On a year-to-date basis, the ZSE is down 3,09%.

Investment analysts say although fundamentals for most counters are not great on the ZSE, they could benefit from hungry buyers.

“The market currently doesn’t have sellers as investors are holding on to every share they have. We see strong buying appetite pushing the ZSE up in the short-term as buyers pay a premium,” said an analyst with a leading stockbroking firm. “Some shares are already a bit overvalued after the rally of last year.”

The mainstream industrial index rose 46% in Q4 2016 while the resources index rose 119% in the same period after the central bank introduced bond notes.

Asset managers have been shunning monetary assets, preferring real assets and shares. While markets elsewhere often struggle to perform ahead of inflation, the ZSE has in the past proven to be a store of value after beating inflation in the hyperinflationary era.

Even value investors are seen throwing caution to the wind as they abandon fundamentals amid inflation concerns in the country, analysts say.

“We have seen the market go on a huge rally in the last quarter of 2016, with locals dominating the buy side over the period while foreigners were generally net sellers on the market,” one analyst said. “When financial results filtered in, re-ratings also occurred, driving some counters up.”

Meanwhile, bond notes continued losing value to the US unit with foreign exchange street dealers discounting the local currency by as much as 6% this week for cash transactions.

This is despite assurances by the central bank the bond note, which is said to be backed by a US$200 million Afreximbank bond facility, is at par with the greenback.

The bond notes were introduced last year to help ease cash shortages in the country after banks’ nostro accounts ran dry.

The local unit is trading at a discount of 6%. Instead of a par value of 1:1, dealers are selling US$100 for $106 in bond notes.

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