'ZSE bull run unsustainable'

HARARE - Zimbabwe Stock Exchange (ZSE)’s bullish run in the 2016 fourth quarter is expected to end soon due to depressed economic conditions, insurance giant Old Mutual has said.

In its Portfolio Manager’s Digest for 2016, Old Mutual said investors were expected to lean towards value preservation assets.

“The recovery in stock prices was therefore more a reflection of investor flight from money market assets to the equity asset class as certainty surrounding the bond notes’ release in the final quarter of the year drove up the equities market,” the company’s securities unit said.

“Going forward into 2017 we expect an asset re-pricing of the equities market as we believe that most quality stocks have been either fully valued or are trading at a significant premium to their fundamental valuation case. Thus,  in the absence of any significant economic shift we do not expect a fundamental growth in the performance of the Zimbabwe Stock Exchange,” Old Mutual added.

This comes as ZSE’s main industrial index garnered a return of 25,59 percent for the year bolstered by a return of 46,05 percent in the final quarter of the year. But, as at September 30, 2016, the industrial index was down 13,8 percent and was at a lower level than when the market opened in 2009.

Old Mutual said economic activity was likely to remain depressed and as a result investment markets are likely to perform in sympathy to this.

“Investors are expected to make a shift towards investment in value preservation assets ahead of growth assets which are riskier,” the company said.

Old Mutual noted that while the Confederation of Zimbabwe Industries reported an increase in capacity utilisation last year, the gains were also under threat if supportive measures to ensure that foreign currency generation improves were not implemented.

“Notwithstanding the improved trend in capacity utilisation… a reversal of the gains already achieved may result.

“Signs of this are already popping up as some reports suggests that retailers have begun resorting to buying foreign currency at premium rates on the black market in order to restock and passing on the premium incurred to customers,” the integrated insurance firm said, adding this was likely going to result in internal inflation.

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