Investors take refuge in equity market

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Discounted market capitalisations are prevailing on the Zimbabwe Stock Exchange.

Investors on the Zimbabwe Stock Exchange (ZSE) took further shares in June with the mainstream industrial index gaining 19,9% as asset managers took refuge in equities.

By Chris Muronzi

In May equities jumped 16,8% to close at 162,34 points propelled by a glut of Treasury Bill maturities and inflation fears in the Southern African country.

This comes after another bull run in the fourth quarter of last year after reports central bank chief John Mangudya was forging ahead with plans to introduce bond notes.

The rally, which started in May, could be coming to a stop.

Analysts had warned a two-month-long rally could fizzle out soon as asset managers shift investments from equities into fixed income investments. Already, shares have slowed down on the ZSE with marginal gains in selected small caps.

On Monday, only seven counters traded. Of the seven, two were in the negative with marginal gains in counters such as Econet up 0,4% to close at 35,50 US cents, Old Mutual up 0,1% to close at US$3,87, powerspeed up 19% to close at 5 US cents and Turnall up 2% to close at 1 US cent.

On Tuesday, 12 counters traded.

Analysts say the big caps Delta, Econet, Seed Co and BAT could have reached a ceiling. This will see the mainstream index moving up marginally, driven by gains in small caps.

The market seemed poised to break the US$6 billion market capitalisation record last week with investors piling further into equities in June.

As of Wednesday, industrials were valued at US$5,5 billion.

Interestingly, most counters on the ZSE are already trading above their book value, raising concerns speculative buying could be setting in with fundamentals now being ignored.

An investment analyst with a leading stockbroking firm says marginal gains will be recorded going forward with the focus now on small caps.

“The market has done too much too soon,” an asset manager said. “We think gains will be recorded in small caps going forward.”

New issuances of government paper and profit-taking could, however, see the market sobering up a bit in the short-term, an investment analyst says.

“Going forward, the market could see gains in small caps. In the early days of the rally, blue chips were propelling the gains and we used to see gains of 3% in a day’s trade. Now, the gains are becoming marginal,” the analyst said.

“At the moment, investor focus has moved away from counters with a huge impact on the index to counters with small caps. This will see the market post marginal gains going forward.”

Others say the market could be testing its resistance after a peak of 2013, an election year. Its peak since the multi-currency system was US$6 billion in market capitalisation May 2013.

As of Wednesday, ZSE industrials were valued at $5,5 billion.

“We are approaching elections and the last time we had an election, we experienced a peak point for the market. Also, asset managers are getting a bit of funds from clients,” an investment analyst with a stockbroking firm noted. “We could see the market rallying right through the end of this quarter. After that, we could see a bit of profit taking.”

The money market is not as hot anymore after Mangudya cut interest rates last year.

But investors are cautious of banks and property companies.

Amid rising inflation concerns, the stock market is proving a safe haven for individuals and asset managers alike.

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