eBusiness Weekly
The stock market rallied in the second quarter of the year, but June’s wobble reversed much of the earlier gains to leave the market with very marginal gains by the close of the first half of the year.
After going through what might be ranked as the worst first quarter performance since dollarisation, stocks rallied in the second quarter with the ZSE threatening to become Africa’s top performer, trailing only the Ghana Stock Exchange and the Malawi Stock Exchange at some point.
By the close of the first quarter, the main industrials index had lost 12,62 percent, the mining index 12,16 percent while the newly introduced indices, the ZSE All Share and the ZSE Top 10 had pared 13,02 and 14,29 percent respectively.
Analysts attributed the slide in stocks to a market correction following the fear and instability driven rally experienced in the third quarter 2017 up to November.
By the end of November the mainstream industrials index had hit an all-time high of 534,13, with $451,71 million having been fed into equities. These high levels might not be seen again — in a while — unless loss of confidence and panic is to return to the markets again.
The second quarter, however, saw tables turning, with losses halting and stocks staging a rally that lasted till mid-June. Big cap stocks were in favour with the ZSE Top 10 gaining more than 25 percent (by mid-June) compared with a year-to-date loss of 14,29 percent in the first quarter.
Overall the second quarter of the year was strong with the main industrials index adding 17,8 percent, while the ZSE Top 10 put on 20,53 percent. The mining index, though slow to run, was the top riser up a strong 28,93 percent.
The gains, however, had to offset first quarter losses resulting in the market ending the first half of the year slightly positive. The ZSE main industrials Index closed the first half of the year up by a marginal 2,11 percent. The second part of June proved to be the rally breaker as the market went through strong losses for 11 consecutive days.
What really drove the market’s volatility?
The broader market has been very volatile. Experts and investors always find a reason to buy or sell shares.
In November last year, when the market rallied to an all-time record high, the reason was loss of confidence in the economy as well as the loss of value in bank balances.
But the losses experienced this June also came at a time bank balances were losing value with illegal foreign currency premiums going as high as 70 percent — but with no rally in stocks — the losses were probably down to profit taking.
When the market started falling following the inauguration of President Mnangagwa, experts attributed this to the return of confidence in his administration, which had declared the country open for business.
Illegal foreign currency rates came off as well, and experts attributed the fall in both stocks and currency to increased confidence.
But when stocks rallied in the second quarter, the issue of confidence was again put forward despite change in direction to positive.
Foreign participation was very high as they became net buyers. With them one could attribute it to anything, increased confidence, speculation, or taking positions ahead of polls.
With locals it could be loss of confidence in the currency market, panic and it could be whatever reason experts say. Attempts to explain might as well be futile.
Profit power
Earnings that were released by most listed entities surged by double digits while some reported record turnovers and volumes.
This obviously stopped the first quarter bleeding, although questions continue to linger on how true these earnings are considering the currency disparities between real dollar values and bank balances.
Cash rich companies found no use for the profits, with companies such as Delta, Econet, Seed Co paying hefty dividends to their shareholders.
A resurgent dollar
On top of making it difficult for the country to trade with its regional partners who now have weaker currencies against it, a stronger dollar also pushes the price of commodities like gold lower, which is bad news for commodity driven economies such as Zimbabwe.
Higher interest rates in the US also spells doom for emerging, frontier, and pre-frontier markets such as Zimbabwe as investors withdraw funds back to dollar denominated and stable assets back in the US.
The trade wars
For years Zimbabwe used to be isolated from the goings on in the world markets, but the current trade wars between the US and its allies, including China does not leave any buffers for Zimbabwe, an economy driven by commodity exports.
China is the biggest consumer of primary commodities, and when its markets are curtailed as US President Donald Trump has attempted to do, then countries such as Zimbabwe also pay the price.
And its not only China, but other US allies which have been affected, the impact will be felt, unless local exporters look for opportunities in the US itself.
The Mnangagwa factor
If the market is to judge President Mnangagwa fairly, then he has ticked a lot of boxes that seemed grey, prior to his assumption of power.
Most, if not all of his pronouncements have been investor friendly. The president has taken every opportunity to declare that the country is open for business and has amended some of the detrimental statutes such as the indigenisation laws.
By any measure he has won investor confidence, most importantly the energy funding he managed to unlock from the Chinese Government which has since advanced more than $1 billion for energy.
Even previously hostile countries such as the UK are warming up to Zimbabwe again and the country has already seen financial packages coming after the Commonwealth Development Corporation and the Standard Chartered Bank advanced $100 million.
While the US is still maintaining its sanctions mantra, US companies such as General Electric, have already shown interest to do business. All this points to better days to come for stocks, never mind the current volatility.
Waiting for the elections
How the market will perform in the second half of the year nobody really knows as it all comes down to elections.
While stocks might firm again ahead of elections as speculators and first movers take positions, the election outcome will determine the direction going forward.
According to analysts, If elections are accepted by all — with less disputes and squabbles — the post stability will bring optimism. A poor election, will undo any positive gains or worsen any losses.
