ZSE capitalisation drops 57pc in 3yrs…Tight liquidity, tepid commodity prices stifle investor sentiment

zseMARKET capitalisation for the Zimbabwe Stock Exchange (ZSE) has dropped by 57 percent in the last three years to $2.6 billion this year compared $6 billion in 2013. As of Friday last week, market capitalisation on the local bourse stood at $2.6 billion from 58 trades. Economic commentators say the bearish run on the ZSE was dominated by net buyers adding that the trend was likely to continue going forward into the year.

This, they said, was attributed to the deflation and the liquidity pressures that continue to affect the economy. “The ZSE performance continues to go down and this largely reflects the general economic performance, which is characterised by liquidity crisis and deflation resulting in negative investor confidence on the bourse,” economic analyst Bongani Ngwenya said.

“It’s fundamental at this juncture to get the economy right by addressing all the challenges stifling economic recovery. It’ll be folly for us to start wondering what’s happening to our stock exchange before addressing the economic fundamentals in general.”

He said the government should come up with economic reforms and strategies that can stimulate aggregate demand. Another economic commentator, Chipo Warikandwa said lack of investor confidence on the stock exchange was largely due to company closures.

“What’s happening in the economy has trickled down into our stock exchange. It’s all because of the deflation and liquidity crunch,” she said. Mercy Shumba, an economist also echoed similar sentiments.

At its peak, the ZSE had 79 counters compared to the current 61 active counters. In the past six years, more than 10 counters have delisted from the ZSE. However, last month the ZSE registered drastic change of fortunes with turnover and volume rising by 38,4 percent and 54 percent, respectively. While activity picked on the stock market in February, as both turnover and volume of shares traded trended up, market value maintained a downward spiral.

The change of fortune provides a glimmer of hope that stocks may offer moderate returns after the blood bath experience of last year and early 2016. The ZSE’s market capitalisation is already 11,42 percent down for the year and market watchers forecast the market to retrace its steps only 15 percent this year.

During a forgettable year for the stocks, ZSE’s market capitalisation plunged to $3 billion as at December 31 from $4.3 billion in January 2015. Tight liquidity and generally tepid commodity prices, the bulk of Zimbabwe’s exports, suppressed corporate earnings and investor sentiment in stocks.

The industrial index had opened 2015 at 167,16, but dropped to 114,85 points by year end. The resources index on the other hand dropped to 23,72 from 55,38. Due to the sustained weakness in the stocks, the ZSE market capitalisation ended the month of February 3,24 percent weaker at $2.85 billion compared to January. Turnover rose 38,44 percent to $15.73 million while average daily trades for the month came in at $749,000.

Volumes traded totalled 95.8 million shares. Econet, Delta and Afdis accounted for the highest contribution to the value of shares traded on the bourse at 40 percent, 35 percent and 6 percent, respectively.

There was little joy though in terms of the performance of the main industrial index, which dropped 3.4 percent to close the month of February weaker at 99.5. The index was largely weighed down by losses in cigarette manufacturer, BAT and telecoms giant Econet, which offset good gains in beverages maker, Delta. ZSE, a key indicator of economic performance, has continued its wobbling from 2015, when the economy grew by 1.5 percent from initial forecast of 3.2 percent.

With softening prospects for global economic performance on account of weak commodity prices and slow growth in China, growth is seen at 1.5 percent in 2016. But the coming months may just bring the much craved for good tidings, as many companies start reporting their results for the financial to December 2015.

“We expect to see continued pressure on the consumer space, as companies grapple to improve efficiencies and enhance margins amidst lower spend and downward pressure on pricing from cheaper imports,” IH securities said.

Market watchers said they have noted return of confidence in the banking sector as reflected in the quality of earnings released by banking stocks. This is attributed to the de-risking of the financial services market through acquisition of non-performing loans RBZ special purpose vehicle, Zamco. — Business Reporter/BH24.

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