Ailing economy condemns ZSE to six-year low

HARARE - The Zimbabwe Stock Exchange (ZSE) witnessed its slowest quarter of trading since dollarisation in 2009 with market value declining by 41 percent to $69,74 million in the three months to March this year from $118,67 million last year, an equities report has shown.

EFE Securities (EFE), in its first quarter trading update released recently, attributed the decline in trading to the country’s moribund economy coupled with the general slowdown of investment flows to emerging markets.

“Zimbabwe’s case was further exacerbated by persistent liquidity challenges that put pressure on prices. Deflationary pressures have also down played the outlook for most listed companies as margins are under pressure while demand continues to wan,” said EFE.

Year to date month-on-month annual inflation figures have firmly been in the negative, and sat at negative 1,4 percent by end of February 2015, as general price levels continue to come off.

Once ranked among the best performing stock exchanges on the African continent, the ZSE has failed to find traction since President Robert Mugabe and his Zanu PF party won the 2013 elections under controversial circumstances.

Since then, the local bourse has been hit by massive foreign investor flight.

In the three months to March, foreign investors bought shares worth $41,8 million — providing 60 percent of the liquidity on the local bourse.

“Similarly, disinvestments were dominated by foreign investors that accounted for an estimated $39,2 million in value which was 56 percent of the total turnover for the quarter,” said EFE.

According to market experts, the foreign component is the dominant activity driver for the market driving both liquidity and supply.

EFE noted that just-ended reporting season offered little hope as the results only but reemphasised the state of the economy with only those with exposure to international markets for their products like Padenga coming out with flying performances.

With the economic pressures coupled with the poor financial results from the companies the industrial index came off -2,81 percent in the first quarter to settle at 158,22 points.

Capitalisation issues weighed on the resources as the mining index ended the quarter down 38,74 percent at 43,93 points.

“An initially checkered growth at the outset of the New Year resulted in the industrial index peaking at 170,28 points on February 10, 2015 and since then the market has succumbed to low liquidity as holders of equity positions sought out the tight liquidity,” said EFE.

The market has gone on an average daily turnover outturn of $1,1 million in the quarter though it actually gets lower if outlier trades involving corporate transactions are excluded.

The report also noted that market activity was predominantly in the heavy cap stocks which are deemed to have sustainable models in the face of weak economic fundamentals.

“Overall Delta, Econet and Innscor top traded in the first quarter making respective contributions values of 33 percent, 28 percent and 8 percent.

“Foreign buying was also largely seen in the same three stocks with an aggregated 89 percent of the total inflows in first quarter being invested in the three stocks,” read part of the report.

“Likewise portfolio disposals by foreign investors exhibited the same skew towards the three top capitalised stocks though the mix changed slightly with most of the sales being in Econet 41 percent, while Delta and Innscor accounted for 39 percent and six percent respectively,” added EFE.

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