ZSE last quarter surge lifts equities, but challenges remain

HARARE,– The Zimbabwe Stock Exchange (ZSE) saw a surge in the last quarter of 2016 as investors sought cover for possible loss of value under the bond notes currency, but the rally failed to mask deficiencies in the southern African country’s economy which are set to spill over into 2017.

Bond notes, a parallel currency, was introduced in the last week of November to trade at par with the United States dollar. The government resorted to printing the notes in a bid to ease the shortage of US dollar notes in the economy, which it blames on smuggling of the reserve currency as well as a gaping current account.

Prior to October, the local bourse was sluggish, with the industrial index easing 15 percent on an annualised basis. The resource index was in worse shape, and was down 44,24 percent at June 30 before a recovery of sorts in the third quarter.

But local asset managers, fearing loss of value after the introduction of bond notes, sought to shield their investments in equities and properties, boosting the bourse performance.

The industrial index closed the year at 144,53 points, a 26,28 percent increase on the previous year while the mining index advanced 146,88 percent year-on-year to 58,51 points.

Total turnover decreased by 15,18 percent from $228,62 million in 2015 to $193,91 million in 2016, its lowest since 2009 when Zimbabwe dollarised.

The average monthly turnover also declined from $19 million in 2015 to $16 million in 2016, while volume of shares traded were down 32,47 percent to 1,5 billion shares. The month of December recorded the highest turnover in the year to the tune of $25,997 million.

August, on the other hand, recorded the least value of trades amounting to $7,076 million in the year under review. The chart below shows that much turnover in the year was recorded starting from October (last quarter) relative to the prior year.

Market capitalisation rose by 30,41 percent year-on-year to $4,008 billion as at 30 December 2016, attributable to gains recorded by most heavy weights.

The largest company by market share, Delta advanced 25,53 percent to close at 88,5 cents. The telecommunications giant, Econet, also added 42 percent to settle at 30 cents. Padenga, Old Mutual and Innscor advanced 107 percent, 71,68 percent and 60,21 percent to close at 16 cents, 349,21 cents and 48 cents in that order.

National Foods and BAT were up 37,41 percent and 25 percent respectively, while Seedco advanced 20,6 percent to 101 cents.

CBZ, however lost 4,46 percent to close at 10,5 cents in the year under review.

On the top five gainers, GB Holdings led the movers pack, advancing 700 percent in the year to 0.08 cent. ART and Riozim put up 510 percent and 188,46 percent to 6,1 cents and 30 cents respectively. Bindura and Colcom also landed in the top five after adding 163,16 percent and 117,65 percent in the year to close at 4 cents and 37 cents respectively.

Medtech was the worst performer in the year after shedding 50 percent to close at 0.02 cent. Cafca, PPC and NTS also lost 49,88 percent, 45 percent and 35,29 percent in that order. Ariston eased 32,69 percent to close at 0.35 cent.

On the mining space, Bindura and Riozim pushed the resource index high after their share prices grew 163,16 percent and 188,46 percent respectively. Falgold also added 20 percent to 0.60 cents. However, Hwange was flat at 3 cents.

Foreigners remained the dominant participants on the local bourse with 52 percent of the trades in 2016 being foreign trades, down from the 56 percent recorded in 2015.

Foreigners were net sellers in the year, having bought shares worth $60,264 million ($125,338 million in 2015) and sold shares worth $140,33 million ($129,66 million in 2015), reflecting diminishing appetite for local shares.

The bourse also recorded the least foreign purchases since 2009, showing its weak capacity to attract foreign portfolio flows, a situation which the Minister of Finance, Patrick Chinamasa said is worrisome. Chinamasa has urged the government to revisit the ZSE transaction costs, which he said are too high relative to other regional stock exchanges.

The net outflows witnessed on the local bourse continue to put pressure on the bank nostro accounts at a time when the economy is faced with cash challenges.

The introduction of bond notes remain the driving force behind the equities gains, with the economy seen performing poorly this year. Chinamasa projected a GDP growth of 0.6 percent for 2016 — half of his earlier projection of 1,2 percent — and 1,7 percent for 2017.

His projection remains optimistic, with the International Monetary Fund projecting a -0.3 percent growth for 2016 and -2,5 percent in 2017 in the absence of reforms and new funding to stimulate the economy.

Manufacturing capacity is seen below 40 percent despite a spike reported for some industries following a ban on imports in June as industry deals with many challenges, chief among them critical shortage of liquidity, power outages. – Source

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