Axia – The right horse to be betting on
BATANAI MATSIKA
It appears that Reserve Bank of Zimbabwe governor John Mangudya’s paradox is that the more he pushes for measures to control inflation
and stabilise exchange rates, the more things fall apart and
go hayway.
No wonder why he believes that there is a “demon in Zimbabwe that is causing economic instability”.
Think about it; we have witnessed (i) the fungibility of dual-listed stocks being suspended, (ii) bank accounts and Ecocash wallets being frozen by the Financial Intelligence Unit, (iii) new transaction limits being put
on the ZIPIT platform and (iv) the interbank rate being fixed at USD1: ZWL25.
Despite all these attempts, the foreign exchange black market rates have galloped towards the ZWL100 mark as the country continues to suffer
triple digit inflation rates (765.57% y-o-y inflation).
With prices doubling every few weeks, economic agents are turning to equities as a store of value.
This is confirmed by the recent bull-run on the stock market. Market capitalisation is up 65% YTD in USD terms!
In principle, equities are a good hedge against inflation and locals are seeking protection on the market.
As a result, the stock exchange has become the new cash machine. Given the limited investment options available, everyone is flocking
in and investment horizons are becoming more and more
short-term.
A share purchased on Monday can be sold on Friday at a good profit.
Better still, there has been a disconnect between share price
performance and underlying company fundamentals.
The market has become more like a Casino and it is showing no signs of cooling off. Most of the small and mid-cap stocks that have
shown triple-digit share price appreciation on a y-t-d basis
have registered a contraction in sales volumes.
In a bull market, investors and traders tend to feel two conflicting impulses.
They hope that the good times will last, and they become reluctant to pull their money out.
On the other hand, they are also worried that the party may suddenly end (a late-cycle mindset).
We have noticed that there is also an uneasy sense that Covid-19 could trigger a bigger rupture in the broader economy which can negatively
impact businesses.
That said, what about those that have been locked-out from the bull-run? Is there anything out there to BUY and join in the party?
The answer is in shortterm technical analysis. We have plotted the relative
performance of 6 major consumer stocks on the ZSE (as from 01 April 2020). The outperformers have been Delta, Innscor, Simbisa and Padenga. The two counters that will have to play catch up are National Foods and Axia.
However, National Foods is tight on liquidity which leaves
Axia as the best horse to be betting on now. BUY Axia!
Batanai Matsika is the Head of Research – Morgan
& Co and can be contacted on +263 78 358 4745 or email:
batanai@morganzim.com
