ZSE investors look beyond liquidity crisis

STOCKS are seen gaining in the months ahead and easing off despite liquidity challenges constraining the markets as investors relook at the earnings potential of listed companies.

Staff Writer.

Analysts say stocks will find momentum from the just-ended earnings numbers as investors and fund managers take positions after analysing companies’ earnings potential and valuations going forward.

This, analysts say, is likely going to create some upside for shares currently in the red after the introduction of RTGS dollars and separation of US dollars from the quasi-currency.

“Out of nothing but tradition alone, stocks are generally going to rise post the reporting season,” an analyst said.

“But after a month or two, they should ease off once again because there are no disposable incomes to support a bull run.”

At the end of June, a new set of earnings numbers is expected to give better and more current reflections of the earnings situation in the country.

Another analyst said local liquidity was tight.

“Liquidity is very tight in the market at the moment,” an analyst said. “What we have seen is liquidity is mostly coming from foreigners divesting out of the market through Old Mutual.”

In an equity strategy note for 2019, 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 $18,07bn 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 USD.”

Under more bearish conditions, IH forecasts a market cap of US$17,22 billion.

The 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.