Inflationary outlook to spur stocks rally

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Discounted market capitalisations are prevailing on the Zimbabwe Stock Exchange.

Inflationary pressures are seen pushing stock prices higher as investors rush to preserve value in the face of a weakening local currency and a widening trade deficit.

By Chris Muronzi

Stockbrokers and investment analysts say although other investors are keenly awaiting direction from President Emmerson Mnangagwa’s cabinet appointments, others are already taking positions.

Post the July 30 election, investors have been buying into some blue chips — OK, Old Mutual, SeedCo and Delta — and some selected counters with seemingly good fundamentals and discounted valuations.

Attractive valuations in stocks such as Fidelity and Zimplow have caught the eye of investors.

In the quarter-to-date, Fidelity went up 750% while Zimplow went up 75,7%.

Mnangagwa, who was in Beijing for the summit of the Forum for China-Africa Co-operation, is expected to announce his cabinet this week.

“We are waiting for the cabinet. If there is a policy shift, that may give us a bit of direction,” analysts with a stockbroking firm said.

MMC Capital co-founder and stockbroker Itai Chirume sees a bull run going into the future.

“The market is going to take off. My view has been informed by the general inflation outlook. With our precarious current account position and the softening commodity prices on the international market, Zimbabwe will be under pressure on the greenback,” Chirume said.

“The developments on the international markets mean that there will be additional pressure on forex. Increased demand for forex will see prices rising. Against such a background, I believe the out is inflationary.”

The stock market is currently valued at US$12,4 billion, down from a peak of US$16 billion last November as investors piled into equities amid inflation fears worsened by the worsening devaluation of the local currency against the US dollar.

In November last year, US$/RTGS discount was around 70%. As of this week, the discount rate was around 70-77%.

Analysts say as demand for US dollar mounts, prices of stock will revalue to reflect the underlying or real value.

The mainstream all-share index is up 16,36% on a year-to-date basis.

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