Elections: Investors eye blue chips

HARARE - Blue chip and fast-moving consumer goods (FMCG) stocks’ demand is likely to remain high as investors hedge against election impact, analysts say.

Zimbabwe is expected to hold watershed polls this year with President Robert Mugabe squaring off long-time rival Prime Minister Morgan Tsvangirai.

Traditionally, the country’s elections have been violent, in turn destabilising business and scaring away investors.

Takunda Mugaga, an independent economist, said blue chips and FMCG stocks are less likely to be affected by the elections.

“They are all weather stocks which are resilient to political and economic shocks such as elections and developments which militate against the general economy,” he said.

“Actually negative developments might trigger their demand,” Mugaga said.

This comes as the Zimbabwe Stock Exchange (ZSE)’s market capitalisation last week inched closer to $6 billion driven by increased foreign-investor participation.

In the first three months of 2013, foreigners were net buyers of $11 million worth of shares a month on average, more than double the monthly average in 2012.

Mugaga said without market factors to promote a continuous upward movement, the equities market was likely to retreat in the second half.

“However, reaching $5 billion is evidence of an exchange with potential to do much better if macro-economic convergence is attained,” he said.

Zimbabwe’s adoption of the multi-currency system — dominated by the United States dollar — and a new constitution has boosted investors’ confidence.

But nagging concerns about the impending elections coupled with the indigenisation policy — compelling foreign-owned firms to cede at least 51 percent shareholding to black locals — are deterring larger portfolio inflows and foreign direct investment.

“Zimbabwe used to be the breadbasket of Africa so the potential to restore its lost glory is still there,” said Funmi Akinluyi, Silk Invest’s sub-Saharan Africa investment director, adding that the firm has no investments in Zimbabwe but is looking at it closely.

“It just needs fundamental changes, starting with politics.”

Those investing in Zimbabwe, including Renaissance Asset Managers, Investec and Stanlib, say they are cautious, but believe the country has already seen the bottom.

They also say companies are cheap compared to regional peers, while tough conditions have produced strong managers.

“The management is brilliant,” said Sven Richter of Renaissance, citing one firm that adopts two business plans each year for high and low inflation. When the environment is particularly harsh you find the best management teams come to the fore.”

But some investors are waiting until after the elections, hoping for more clarity on the new government’s policies. - Business Writer

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