A FRUITFUL season lies ahead for punters on the Zimbabwe Stock Exchange (ZSE) in 2021 despite major headwinds that have perennially spelled trouble for the economy, market analysts say.
A positive result from an envisaged Covid-19 vaccine rollout, growing pessimism around the money market, increased appetite for stocks to hedge against inflation and weakening of the local dollar, are positives for the local bourse.
Markets analyst Ranga Makwata said there was a positive outlook for equities in 2021 although the broader economic prospects remain dim.
He said just like what was witnessed in 2020, earnings prospects for listed companies will have little impact on stock market performance although some improvements are expected as a result of a better agricultural season and reduced Covid-19 disturbances once the vaccines are rolled out.
Makwata said activity will be steered by money supply growth as government spending increases to meet growing demands at a time revenue is not increasing.
Some of that money, he said, will find its way onto the stock market as people hedge against value erosion from rising inflation and depreciating currency.
Inflation, currently controlled, is likely to trend upwards as a result of the exchange rate pass through effect, Makwata argued.
He added that it was unrealistic to expect the Zimbabwe dollar stability witnessed in the last six months to continue for long because the foreign currency supply gap was worsening with more companies increasingly resorting to the parallel market as the auction system fails to meet demand.
“In short, bad news will continue to drive performance on the ZSE,” Makwata said.
“We expect increased corporate activity, for example mergers and acquisition as cash-rich local entities riding on government contracts will be looking for a home for their huge ZWL balances.
“We saw many such transactions in 2020, and we could see more in 2021 and these tend to push stock prices of target firms up.”
Foreign investor participation, the analyst said, was likely to be minimal as most foreign investors who exited in the past year are not expected to come back unless there is a dramatic economic improvement.
“The market still looks cheap with most stocks trading at huge discounts to net asset value. This should be another reason for strong performance in 2021,” he said.
The basis of Makwata’s argument is that most of the leading listed businesses invested heavily in property plant and equipment during the dollarisation period and currently their share prices imply valuation way below the value of investment.
Research firm Econometer Global Capital said the bourse will remain decoupled from developments in the real economy while retaining some features of a barometer towards the financial and the external sector.
The firm expressed what it termed “guided optimism” regarding the ZSE outlook, building on a positive performance in the first three quarters of 2020 where the industrial and mining indices outperform a majority of other market indices on the continent.
This strong performance was despite the negative sentiment simmering from the suspension of three fungible stocks on the exchange.
The ZSE unveiled the Victoria Falls Stock Exchange for local and regional counters to raise capital in foreign currency. However, the appetite has been very low with only SeedCo listed since the bourse went live in December.