Covid-19 triggers massive share sell-offs on ZSE

Share prices on the Zimbabwe Stock Exchange (ZSE) are expected to plunge during the national lockdown and beyond as companies engage in massive sell-offs on the stock market in the face of the global effects of Covid-19.

By Melody Chikono

Even before the announcement of the lockdown by the government last week, volatility had remained high on the ZSE with stocks shedding 7,24% and partially erasing the prior week’s gains.

The pandemic is going to have a negative impact on economic growth in 2020. By extension, performance of companies, including listed ones, will be severely affected hence share prices will also largely be bearish.

Although the swing from huge gains was hastened by sell-offs in dually listed counters Old Mutual, PPC and Seed Co International following the suspension of fungibility on the local bourse, market analysts say it is going to be tougher for fragile economies such as Zimbabwe which already had structural weaknesses before the Covid-19 outbreak.

Stock market performance in 2020 before the lockdown was going to be largely driven by foreign exchange rate-induced hyperinflation developments rather than by earnings generation as companies were already seeing massive declines in volumes.

Market analyst Ranga Makwata this week said the pandemic will have a huge impact in terms of economic growth and share price.

“The pandemic is expected to have negative impact on economic growth in 2020 and, by extension, performance of companies, including listed ones will be severely affected hence share prices will also be largely bearish. It is going to be even tougher for fragile economies such as Zimbabwe which already had structural weaknesses even before the outbreak,” he said.

On Tuesday, two days into the lockdown, the all-share index recovered a marginal 3,52 points (0,78%) to close the month at 456,21 points.

National Foods Limited traded ZW$4,4 higher at ZW$26,6 while Meikles Limited was up by ZW$1,2681 to ZW$8,1014 and Seed Co Limited traded ZW$0,3759 stronger at ZW$3,8759. Two more counters to advance were Old Mutual Limited which increased by ZW$0,3084 to settle at ZW$38,3 and PPC limited was ZW$0,0714 stronger at ZW$3,9364.

Gains were offset by losses in Hippo which eased ZW$0,6188 to ZW$5,3812 while Innscor Africa dropped ZW$0,2463 to ZW$7,5 and Dairibord Limited was ZW$0,0844 lower at ZW$0,5400. TSL lost ZW$0,0682 to ZW$1,5318 and Edgars traded ZW$0,0500 weaker at ZW$0,2.

The herding effect has been a major undoing characterising stock markets in most economies regardless of Covid-19 stress and the ZSE is not a unique case with businesses operating below 50% capacity utilisation given streamlined operations.
FBC Securities research and investments analyst Enock Rukarwa said the development is permeating an unprecedented demand strain on the buy side.

“Bearing expenditure pressure mitigating novel Covid-19 effects as well as prioritising human resources health and safety, demand for liquidity is galloping daily, leading to a net sell-off on the market,” Rukarwa said. “We forecast the bearish sentiment to rally for the greater part of the lockdown necessitated by low demand and liquidity creation.”

Investors are opting for liquidity, thus choosing sleek portfolios given the uncertainties ahead in the face of a pandemic which has caused a downturn on business operations.

Equity Axis, a financial research company, says should the crisis persist, most businesses would need a cash cover to sustain operations, while some businesses may grossly under-perform, thereby eroding their underlying value.