STOCKS are seen giving up gains this year, a research firm says.
In an equity strategy note for 2018, IH Securities has forecast a 7% downside in stocks based on a 2,6% gross domestic product growth and earnings growth of 18,6%.
“Our base case market capitalisation, based on a nominal GDP growth of 2,6% and subsequent nominal earnings growth of 21,6% is $18,07 billion at the end of 2019, representing downside of 7% from 31 December 2018 levels,” IH Securities says.
“However, applying our IH exchange rate projection of 1 USD: $2,5 to the base-case target market cap yields $7,23 billion in terms of real US dollar.”
Under more bearish conditions, IH forecasted a market cap of US$17,22 billion.
The bearish conditions are linked to underperformance in the consumer sector owing to austerity policy measures and a conservative economic growth of 2%.
“Our bull case assumes more robust nominal GDP growth at 3,1% according to the MoF (Ministry of Finance), resultant earnings growth of 34% leading to total market capitalisation of US$18,93 billion at year end, representing upside of -0,3% at current levels,” IH said.
At current Old Mutual Implied Rate, a market cap of US$3,57 billion implies a 103% growth to the US$7,23 billion target market cap in US dollar terms should fundamentals be factored in, said IH.
Additionally, recent monetary and fiscal policies have had a contractionary effect on consumption with the trend seen continuing into 2019 thanks to Finance minister Mthuli Ncube.
“Although growth is anticipated in the mining and agriculture sectors, we believe that demand for personal consumption will take a plunge in 2019 as further price corrections occur as a result of the highly-anticipated currency forms. Therefore, we lean towards ‘relatively defensive’ stocks such as Econet (ECO: ZH) and Cassava (CSZL: ZH), an attractive stand-alone asset positioned to maintain its strong growth trajectory. Forex earners including SeedCo International (SICL: ZH) and Padenga (PHL: ZH) provide a natural hedge in this market, whilst Simbisa with its regional diversification and Innscor (INN: ZH) also remain in good standing in our view,” IH said.