Difficult quarter for invested funds as ZSE loses 17%


Last Friday brought a close to a chal­lenging first quarter on the Zimba­bwe Stock Exchange as the uncertain economic outlook has translated to subdued trading. The quarter saw all the indices close in the red, while blue chip stocks have tumbled under sig­nificant selling activity.

The market slump started off at the turn of the year, as uncertainty about the Monetary Policy Statement (MPS) saw investors opt to cash in on their gains and exit the market. Lead­ing up to the MPS, the general con­sensus was that the country was head­ing towards a currency reforms, as the distortionary effect of the 1:1 parity was creating an increasingly unsus­tainable economic environment.

The All Share Index dropping 17% to close at 193,98 points. The Industrials index lost 17% and closed at 405,57 points. Low activity in the mining counters, saw the Minings In­dex fare slightly better than the oth­ers, dropping 15% to close at 193,98 points. The quarter saw trading in gold mining stock Falgold suspended by the ZSE after the company failed to timely publish its financial state­ments for its 30 September 2018 fi­nancial year. The selling pressure on blue chips brought on by the switch in sentiment saw the Top 10 perform the worst among the indices, shed­ding 21% to close at 114,61 points for the quarter. Total market capitali­sation fell 17% to RTG$16 million which translates to US$5,1 billion at the current interbank market rate of 1:3.1029.

The quarter’s top gainers predomi­nantly featured small cap stocks which became more attractive to investors seeking value against the price inflat­ed I blue chip stocks. Pharmaceutical company Medtech has the best price performance at a hefty 350% to close the quarter at 0,09 cents. The big fall­ers of the quarter were dominated by blue chips stocks, with two of the markets most capitalized counters in Cassava and Delta featuring. This was generally the case for blue chips, with all the top 5 capitalised counters los­ing value during the period.

Looking at the released 2018 fi­nancial statements, the impact of the rising inflation saw listed companies experience high revenue and profit growth as they passed the input price costs onto the consumers. The effect is significantly observable in retail

companies Axia, Edgars and Tru­worths which recorded high revenue and profit grow despite declining unit sales. On the other hand, the condi­tions bode well for companies such as Innscor and NatFoods, which pro­vide the sort of basic necessity goods that consumers stockpile in times of uncertainty. Both companies saw revenues and profits rise in tandem with rises in unit sales. Meanwhile, inflation lags on operating costs saw companies generally improve their net profit after tax margins from the comparative period.

Looking ahead to the next quar­ter, the current adjustment process is expected gradually subside as stock prices fall in line with the market sen­timent. The downward adjustment of the prices combined with the ex­change rate devaluation are expected to draw in more value seeking foreign investors as the economy stabilises to the new monetary policy regime. The immediate post dollarisation period saw an influx of “white knight” for­eign investors, looking for underval­ued stocks and bargains. This would be the ideal scenario for the market, although the difficulty of expatriating funds is probably the biggest draw­back for any prospective foreign in­vestor.

The resolution of that situation lies in the interbank market and its ability to sustainably supply forex to the for­eign investors. Considering the cur­rent conflicting messages about the markets operations, it could be a long wait for the white knights.

In the meantime, expectations fol­low that investors will opt for a more defensive strategy, opting for export oriented companies like Padenga Holdings, Hippo Valley or dual listed stocks like Old Mutual and SeedCo International. The foreign investor rush to exit the market has recently seen a resurgence of the Old Mu­tual share, which had briefly trended downwards.


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