Stocks plunge ahead of polls

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Discounted market capitalisations are prevailing on the Zimbabwe Stock Exchange.

Stocks plunged this week as investors cashed out ahead of key elections next week amid growing worries that valuation metrics could be up in the sky after weeks of solid gains.

By Chris Muronzi

The market gave up 0,64% on Tuesday, weighed down by losses in big caps. The mainstream All-Share Index gave up 0,64% on Tuesday to close at 118,53 points. Delta gave up 1,29% to close at US$2,33, while Econet plunged 1,62% to close at US$1,27. On Wednesday, shares plunged further to close 2,34% weaker as investors took further positions ahead of polls. The mainstream All Share Index gave up 2,34% to close at 115,03 points while the Zimbabwe Stock Exchange Top 10 gave up 2,69% on the same day as big caps took a major dive. Delta plunged 7,98% to close at US$2,15, while Econet fell 9,29% to close at US$1,26. The decline in equities is seen continuing until elections next Monday as investors play it safe given the high valuations in the market now. For instance, British America Tobacco had a price-to-book premium of 37,97 and a price-to-earnings ratio of 49,02 as at 30 June. This shows that BAT was trading at a premium to its book value of 37,97, while an investor had to part with US$49,02 for a dollar in RioZim earnings. Another counter, RioZim, was trading at a premium of 13,51 to its book value and a P/E of 22,44. These valuations are unusually higher than those obtaining in similar industries in other markets in other markets.

Share prices that have been rising owing to currency uncertainties which have spawned a bond/US dollar premium as high as 80% on the parallel market could be in for a further knock, depending on the outcome of next week’s election. A number of scenarios are seen playing out. Should the election be free and fair, this is seen unlocking foreign direct investment and narrowing the bond/US dollar premium, a development that will see a correction of valuations to levels in line with the real value of the securities. Should the elections be seen otherwise, analysts expect the discount to widen further and the value of shares to rise.

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