HomeAnalysisStocks begin the year on an adverse note

Stocks begin the year on an adverse note

Respect Gwenzi Financial ANALYST
The stock market did not start the year on a very positive note. Key performance indicators show a slowdown in participation which in turn impacted on share price performances across the market.

Perhaps this is an indicator of tightening Zimdollar liquidity levels in the economy and the impact it has on demand for stocks as well as stocks valuations.

The ZSE opened the year 2022 on a weak note with activity significantly plunging as aggregate turnover dipped by -77% to a five-month low of ZWL$4 billion. The low record was driven by a -64% decline in total volumes to a more than two-year low of 82,4 million shares.

Demand in the month was highly curtailed by uncertainty as investors sold off in December and awaited a clear trajectory the bourse will take.

In December, the market recorded the highest monthly aggregate turnover, since de-dollarisation, of ZWL$17,6 billion. This was attributable to heightened trades in market heavies as seen by a subdued growth in volumes which totalled a mere 231 million shares.

Aggregate turnover had been growing in each month for five consecutive months to December, 2021, before the halt in the month under review. The decline is also attributable to tightened liquidity which has left investors and traders with less savings. The declining inflation has also lessened investor-appetite for hedge seeking.

Capitalisation performance
On the upside, a 12% increase in the mainstream ZSE All Share Index drove up the market capitalisation by an equivalent 12% to ZWL$1,5 trillion.

Market capitalization is a function of share prices against issued shares per respective stock. The ZSE is now at its highest market capitalisation since de-dollarisation, both in nominal and real terms. In real terms, the ZSE is valued at US$13,26 billion based on the average interbank exchange rate for the month of January.

This is a 2nd record high in over four years. However, on a parallel market basis the bourse is valued at approximately US$7,4 billion which still shows a positive growth historically.

Foreign participation performance
Foreign participation recorded a slowdown in the month under review, in line with the overall turnover. Foreign inflows were -93% lower than the prior month record, falling to a four-month low of ZWL$52,64 million. Foreign inflows had been on an upsurge for three straight months to December before the halt in the month under review.

Meanwhile, foreign outflows came off -38% lower than the prior month record. At ZWL$254 million, outflows closed at a five-month low. On the upside, foreign outflows have been falling in the past two months while inflows were growing, which shows a positive sentiment in foreign investors.

In US-dollar terms, overall foreign trades totalled US$592 592 which is a four-month low record as liquidity stifles.

Overall Comment
The ZSE opened the first month of 2022 on a positive note in price terms, with the mainstream All Share Index notching 11,62% over the period to close the month at 12079.74 points.

This was stimulated by a 14,77% growth in the top 10 counters, outweighing a -5% decline in penny stocks. The rise in prices was also driven by a recovery from the heavy loss incurred in the prior month of December as investors took out gains.

However, aggregate turnover took a huge dive in the month as trades were dominated by minorities amid a resurgence of the viability of other asset classes and other investment vehicles as the Covid-19 restrictions are almost fully relaxed.

The resumption of other economic activities at full scale has widened the net of investments by potential traders and investors.

Meanwhile, the reduced momentum in inflation has also trimmed investor-appetite for hedge-seeking as prospective gains on ZSE soften along with inflation and the value of investor-funds is also preserved in a prolonged period than before. On VFEX, Padenga remains the most active counter on BNC, having traded in 12 sessions in the month, out of the overall 21 sessions.

An aggregate of US$191 708 exchanged hands on VFEX, with Padenga contributing US$102 064 while SeedCo traded a total of US$85 704.

BNC dominated 2,1% of the aggregate market turnover while Caledonia did not record any trade in the month.

In the currency market, the resumption of the interbank market was extended to mid-January due to fears of Covid-19.

The ZWL has, however, depreciated by -6,2% against the greenback to trade at US$1:ZWL115,422.

Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net

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