Zimbabwe Stock Exchange.
BEARS ran rampage on the Zimbabwe Stock Exchange (ZSE) last week, forcing the main industrial index to plunge below the psychological 100 points for the first time in seven years.
The 100-point-mark was benchmarked in February 2009 after the country embraced multi-currencies, having given up on the Zimbabwe dollar, which had succumbed to hyperinflation.
Leading to the benchmarking of the bourse, trade on the equities market had been halted in 2008 as a consequent of the hyperinflation.
Towards the end of 2008, hyperinflation, estimated at 500 billion percent at the time, had caused nightmares to the authorities as they could not cope with the resurgence of zeroes on the domestic currency, which had the effect of pushing share prices beyond ZW$30 quadrillion in November 2008, causing computer systems to crash.
Last week, the market plunged to its lowest ebb, reacting mainly to negative sentiment.
What seemed to have triggered the fall is the infighting in President Robert Mugabe’s ruling ZANU-PF, which frightened investors.
Last week, police clashed with demonstrating war veterans to cap an action packed-week in which “warring” ZANU-PF factions resorted to votes-of-no-confidence in a bid to annihilate their rivals.
Last Wednesday, the ZSE continued its southwards direction, when the industrial index dropped by 0,41 percent to close at 99,39 points.
On the day the war veterans clashed with police on Thursday, the index reacted by shedding a further 0,28 percent of its value to end at 99,11 points.
The next day, it firmed a bit to close at 98,92 points, ending one of the worst weeks for the stock market since 2009.
The industrial index peaked at 233 points in August 2013 but has since then been retreating on investor concerns about economic growth and policy inconsistences.
They were notable trades in Delta last week, one of the only five active counters.
Other counters that have been active are retail giant, OK Zimbabwe, Innscor Africa, BAT and Old Mutual.
Foreign investors accounted for 14 percent of purchases and 95 percent of sales, making them net sellers.
There were no trades in most counters.
What happened last week simply compounded an already bad situation on the ZSE.
The bourse has lost US$1,6 billion in market capitalisation since December 2014, and market watchers are predicting gloom going forward.
Over 12 counters have de-listed from the ZSE in the past five years.
Key counters such as TA Holdings, Lifestyle Holdings, Trust Holdings, CAPS Holdings, Cairns Holdings, Steelnet, Radar Holdings and Celsys exited the exchange for a variety of reasons.
Essentially, because of the liquidity crisis rattling the domestic economy, the bourse has lost its luster as a vehicle for raising cheap capital.
Only a few counters have also been recording meaningful trades which means that shareholders are not realising encouraging value to maintain their listing.
To a lot of them, the cost of remaining on the ZSE is now far outweighing the benefits.
Whereas the market had nearly 80 counters five years ago, it is down to 64 currently.
There is currently mounting pessimism over the future of the bulk of the remaining 65 counters on the ZSE.
As of February 5, the top 10 counters (excluding Old Mutual), were accounting for about 70 percent of market capitalisation, which means that the other 55 counters accounted for the balance.
That alone means it no longer makes sense for many of them to remain listed.
In its call to exit the ZSE dispatched to shareholders a few weeks ago, Radar Holdings pointed this out.
“The reason for the proposed delisting is that the group continues to underperform. After tax profits declined from US$288 006 in FY14 to a loss of US$288 071 in FY15. Furthermore, compounding the group’s underperformance are costs associated with remaining listed on the ZSE that are exuberant,” Radar said.
The proposal goes to a shareholder vote at an extraordinary general meeting today.
Kingston Khanyile, the chief executive officer of Mtilikwe Financial Services, sees the market maintaining this trajectory in the short-term.
“Institutional investors are the major players on the stock market but they have not been active,” said Khanyile.
Foreign investors, who have been keeping the ZSE afloat, have drastically scaled down on their participation in the wake of mixed signals coming out of President Mugabe’s government with regards to major policies such as the Indigenisation and Economic Empowerment Act, which compels foreign-owned companies to give up controlling stakes to local blacks.
The infighting among factions in his ZANU-PF party has simply rubbed the salt into the wound.
The value and volume of shares purchased by foreign investors slowed by about 56 percent and 42 percent respectively during the year to December 2015, compared to 2014.
The market has also seen global sovereign wealth funds sitting on the fence, watching the dramatic developments in Harare with a keen interest.
Stockbrokers are worried as de-listings, in the absence of new listings means their brokerages might go out of business.
“Chances are that if things continue like this it can be brutal, and the people who will be affected most are pensioners. Some of us will lose our jobs,” said a leading stockbroker.
Normally, the market is propelled by funds invested by pension funds and insurance companies.
Pension funds have been crippled severely by job losses across all sectors of the economy, which has deprived them of income.
Insurance companies have been hit by the crisis as well with most of them battling with premium cancellations.
Naturally, there is a corresponding effect on the performance of the stock market and that of the economy.
Researchers at MMC Capital say they expect the headwinds affecting the ZSE to persist throughout the year.
“Economic theory stipulates that there is a strong positive correlation between stock market performance and economic growth and since there is no economic stimuli in sight, activity on the ZSE will continue to be depressed,” said MMC.
“On the back of the persistence of liquidity challenges locally, trades on the local bourse will mainly be propelled by foreigners and trading will be concentrated in blue chip counters which are dear to them. We have witnessed companies reporting depressed earnings in 2015 and our view is that the trend will likely continue, hence valuations will reflect declining corporate earnings,” it added.
Kudzi Sharara, an analyst, said the stock exchange was a victim of what has been happening in the wider economy.
Overall, business has been declining with no respite in sight.
As a result, corporate earnings are sliding, and turnover, including of major firms, is slowing.
Not helping the situation, according to Sharara, is the unpredictable nature of government policies and other events taking place on the political front.
“When you think things are improving, something happens which takes us back,” said Sharara.
Itai Chirume of MMC Capital this week said it was not all gloom on the equities market.
He said the fact that there were still sellers on the market meant there were buyers, which is a good sign.
“I don’t want to sound over optimistic but what is encouraging is that we are seeing volumes,” he said.
“Volumes are coming in Innscor and OK, for example. If it was a dire state where people do not want to touch the ZSE, there would be no buyers. Some investors are coming in when others are exiting. There are people who are seeing differently, who are optimistic. In some counters, anything that has been coming has been snapped. The fact the people are coming in now when things are dire means they want to position themselves. Stocks are long-term investments. Some people are seeing long-term opportunities at current prices. The opportunities in Zimbabwe are that it is a frontier market. There are opportunities for growth because of lagged development. As we reshape our economy, going forward we will grow. Zimbabwe offers a unique opportunity. Political issues are short-term…,” said Chirume.
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