Zimbabwe: ZSE Bull Run Anticipated

Paul Nyakazeya and Leonard Makombe
22 April 2010

A BULL run is expected on the Zimbabwe Stock Exchange (ZSE) in the short-term as investors take advantage of low prices on the market following the extension by another month of the deadline for submitting indigenisation plans for companies that failed to do so by April 15.

Kingdom Stockbrokers (KSB) this week said equity market loyalists should take advantage of the low prices currently prevailing on the stock market as they continue with their capital preservation methods.

"We believe that the market still presents investment opportunities for the long term investors and opportunities to switch from expensive to cheaper stocks," said KSB.

"Investors should consider that the market is currently characterised by high volatility implying that the risk of losing money is also very high. It has therefore become of paramount importance for investors to put more emphasis on value preservation rather than some aggressive investment strategies."

Addressing journalists in Harare on Tuesday Indigenisation minister Saviour Kasukuwere said the extension of the deadline was meant to give more time for firms to comply with empowerment regulations.

He dismissed reports that the indigenisation law had been repealed.

"Government at its cabinet sitting last week acknowledged the pressures faced by reporting companies in meeting the deadline," he said. "It has to be appreciated that a good number of the companies, which are affected by this law are domiciled abroad and have intricate shareholding structures, which make their decision-making process drawn out. In recognition of this reality, government decided last week to extend the deadline in the regulations by another month to May 15 2010."

KSB said equities investors should also put emphasis on companies with March year-ends which are expected to announce their results by 31 June.

This includes companies like Aico, Delta, African Sun, CFI, Seedco, OK and Pretoria Portland Cement Company.

OK will be of particular interest especially after the coming of a new partner, Investec, and a rights issue which was 70% subscribed making it the most successful rights issues since dollarisation.

ZSE has had a wobbly performance since the beginning of the year leaving investors wondering where it is going.

Investors seeking signposts on where to put their money may be reading more on what the politicians are saying than the performance of the companies listed on the local bourse.

As a result, the local stock exchange is being largely held hostage to political and policy developments which in most cases have had a negative effect.

Last week for example, the ZSE traded positively riding on the news that the Indigenisation and Economic Empowerment Regulations (requiring that companies with a capital base of above US$500 000 cede 51% to locals) had been suspended.

This excitement was immediately doused when President Robert Mugabe stated that there would be no changes on the substance of the regulations.

Events last week summarised what has been happening to the local bourse since the beginning of the year.

In January, the ZSE grew 3,1% to 156,52 points on the December 2009 figure but this was not sustained as it slipped to 140,37 points in the following month.

The ZSE saw slight growth on the February figure to 142,37 in March with US$39 million changing hands.

Analysts are cautious about the performance of the local bourse, citing the proposed regulations and the shaky political settlements as the main drivers of fear in investors.

At least 60% of the investors on the stock exchange are international investors who are risk averse hence the susceptibility of the ZSE to political developments.

"Any positive changes will be a major boost to the equities market which has been very sensitive to this development," said the analyst with a commercial bank.

Even the lure of low prices has not attracted investors who fear losing out as a result of the volatility on the market. In a normal situation, investors buy when prices are low and sell when they pick up.

Investors are looking at the volatility and have realised that the risk outweighs the benefits and may be looking for alternative investment destinations, though there are very few options.

Meanwhile market expectation of revenue from tobacco and diamond sales has seen increased resistance of higher interest rates by borrowers on the local money market, a situation that has stabilised interest rates at their current levels.

Tobacco sales have so far contributed US$59,7 million to local money market liquidity from the sale of 18,01 million kgs of flue-cured tobacco at an average price of US$3,32 per kg since the 2010 marketing season began on February 16.

Wholesale investment rates, have stabilised within the 7% - 25% range for the 7-90 day investment area.

According to the Reserve Bank replacements for the 90-day area were trading in the 30% area as financial institutions' demand for funding ahead of corporate tax payment date increased