'Foreign investors still keen on ZSE'

HARARE - Foreign investors are still keen on investing on the Zimbabwe Stock Exchange (ZSE), despite scepticism and uncertainty obtaining in the economy, analysts say.

This comes as the equities market, which fell a combined 21 percent after the election result in August, is now slowly rebounding.

On Friday the market closed the week in the positive after gaining 0,67 percent to close at 197,97 points.

Sean Gammon, the Imara Capital Zimbabwe (Imara)’s chief executive, said the ZSE has often been overlooked as a source of investment flows as it is mostly seen as a place for investment speculation.

“This overlooks the fact that net foreign investment inflows into the ZSE since the introduction of the multi-currency regime is currently $360 million, comparing favourably with much of the investments made in the real economy over the period,” he said.

Gammon pointed out that although many feel that the introduction of the multi-currency regime kicked off foreign investment in Zimbabwe in 2009, it is a misleading notion as the influx of foreign investors particularly on the Zimbabwe Stock Exchange dates back around 2006.

“This is a fallacy as foreign buying, driven by interest from the United States in particular, dates back to around 2006, when the Old Mutual Implied Rate allowed for a mechanism for both valuation and transmission during the dark days of hyperinflation,” he said.

“The key point here is that, even in those difficult and uncertain times, investors were seeing an opportunity to invest here, because of the very attractive valuations in the market,” said Gammon.

He pointed out that the market place was fairly limited back in those days, but has grown steadily on the back of growing interest in the African investment case.

“These investors weigh many issues in asset allocation, but key among these are valuations, growth prospects, and governance and regulatory issues,” said Gammon.

He noted that foreign investors who have defied market sentiment in 2006 and invested on the ZSE’s heavyweight counters have seen the value of their investments treble.

“Among our stock picks for that October 2006 road show were Delta at 27c a share, Innscor at 31c and Econet at 19c.  A million dollar investment in these three stocks at that point would now be worth $3,2 million, despite the market correction since July 31,” said Gammon.

From Imara’s visit to the United States in 2006 the winning stock pick, was Circle Cement, now LaFarge.
“This stock was trading at 7 cents a share, a market capitalisation representing a third of sales. The share price is now $1,15, a 16 bagger for the brave investor.

In point of fact, we had a client give us an order to buy a million dollars’ worth on the strength of our presentation,” said Gammon.

He added that limited liquidity meant Imara could not fill the whole order, pointing out that the investor bought enough to make him very happy indeed.

“Although the multi-currency regime has brought stability to pricing on local bourse, leading investors pay more attention to price earnings ratios, and even attempt discounted cash flow valuations, the discount to absolute asset values, or to regional comparative stocks remains a widely spread tool.”

Gammon pointed out that on this basis the likes of Delta still offer a reasonable discount to regional peers, while Econet is one of the cheapest stocks in its sector in the world.

He, however, said that it was vital that the newly elected government remains cognisant of the ability of the private sector to best allocate resources to the benefit of all.

This comes as the equities market lost nearly $1 billion in one week following the controversial re-election of President Robert Mugabe on July 31.

The southern African country’s bourse — which had a market capitalisation of $5,96 billion before 89-year-old Mugabe’s election victory — plunged a combined 15,68 percent to close the week at $5 billion.

Market watchers say the continued bearish run on the ZSE is due to cautious trading by foreign investors who fear that Zanu PF’s boosted majority could embolden it to pursue even more radical economic nationalism of the kind that led to violent seizures of white-owned farms after 2000.

“It is a true indication that foreign investors do not have faith in a Zanu PF-led government because of its long standing history of implementing poor policies. It will take a long time for this government to be trusted,” said independent economist John Robertson.

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