eBusiness Weekly
Kudzanai Sharara Taking Stock
Forget about weak economic fundamentals or whether the gains are justified or not, the Zimbabwe Stock Exchange racked in more than $619 million in turnover in the eleven months to November — the highest since dollarisation — while year-to-date gains were at a strong 371,61 percent.
November got the biggest monthly turnover for the year of $207 million up from $169 million in October.
In October, the main Industrials Index reached an all-time high of 521,85 only to come off towards the end of November, following events that started on the 15th of November when the military took over control of the country under Operation Restore Legacy.
This culminated in the appointment of President Emmerson Mnangagwa.
Reaction on the ZSE was very significant with the market tumbling by approximately 40 percent for the period between November 16, 2017 and the inauguration of President Mnangagwa on the 24th of November.
Analysts attributed the decline to market correction which coincided with illegal foreign currency rates coming down from highs of 90 percent to approximately 50 percent as confidence in the new administration soured.
The market picked up again as investors bought into stocks that were now fairly valued after the previous drop. This followed President Mnangagwa’s inauguration where he delivered a speech which spoke to prioritising the economy.
“Our system of economic organisation and management will incorporate elements of market economy in which enterprise is encouraged, protected and allowed just and merited rewards, while gainfully interacting with strategic public enterprises run professionally and profitably, all to yield a properly run national economy in which there is room and scope for everyone,” said President Mnangagwa.
The ZSE’s main Industrials Index also closed positive in seven different months during the year as stocks rallied on the back of currency uncertainties among other weak economic fundamentals.
It’s now very likely that stocks will end the year on a positive note, unless something dramatic happens between now and end of year. Investors will however be interested on which direction the stocks will take as the year comes to an end. So far trading in December, has been mixed as buyers have adopted a wait and see attitude, while analysing every piece of information coming from President Mnangagwa’s administration.
On November 30, 2017 President Mnangagwa announced his cabinet and the following day the markets reacted negatively with the main industrials index shedding 2,72 percent. This was followed by another 2,15 percent weakness on Monday and a 5,41 percent loss on Tuesday, then another 1,14 percent loss on Wednesday.
Popular sentiment was that the new cabinet was not necessarily what the market was expecting.
Cabinet is, however, now firmly in place and the market’s performance going forward now hinges on a few big issues.
One is the 2018 national budget that was presented yesterday by Finance and Economic Development Minister Patrick Chinamasa.
The market has already viewed President Mnangagwa’s inauguration speech as positive and is now waiting on how the pronounced measures will be implemented through the Budget.
One aspect that is set to boost investor confidence is amendment of the Indigenisation and Empowerment Act, restricting it to the Diamond and platinum sector “extractive sector”.
While it would have been good to repeal the whole Act and re-brand the policy with a different name, investors will still find heart in that it’s now confined to only two minerals leaving all other minerals as well as other sectors of the economy open to any investor regardless of nationality.
Minister Chinamasa also said the thrust now is to move towards a “New Economic Order” that will usher a break away from policy inconsistencies, reversals and hesitations of the past, and signal a strong Business Unusual Approach.
Minister Chinamasa has since admitted that over the years, corrective measures to address the apparent fiscal indiscipline have constantly been proffered and, in a number of cases, Cabinet has embraced recommendations made, only for these to be arbitrarily reversed or ignored, reflective of lack of political will. Hope is that there is now political will to implement as proffered. Following yesterday’s Budget, the market should be better placed to know how the rest of the year pans out.
Markets will look to a stable currency
The US dollar has been trading at a huge premium to bank balances hitting an all-time high premium of 95 percent in Mid-November. One key aspect that will determine the path markets will take is how Government will address the foreign currency issue.
Zimbabwean companies and individuals have been struggling to access foreign currency from official channels forcing them to resort to the illegal forex markets were currency is sold at huge premiums. This resulted in the loss of value for bank balances forcing many with large cash piles in banks to seek refuge in stocks which were considered as a safe haven. Instability and inability to access cash in both local and nostro accounts will push investors to look for safety in shares again.
However, one clear sign of growing confidence in the economy would be a sharp drop in the currency premium and in the same process firming stocks.
