Markets

Identifying coronavirus winners on the stock exchange

BATANAI MATSIKA

An interesting concept in game or economic theory is the zero-sum game.

This is a mathematical representation of a situation in which each participant’s gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.

If the total gains of the participants are added up and the total losses are subtracted, they will sum to zero.

Put plainly, one person’s gain is equivalent to another’s loss, so the net change in wealth or benefit is zero.

A zero-sum game is a strictly competitive game while non-zero-sum games can be either competitive or noncompetitive.

Poker and gambling are popular examples of zero-sum games since the sum of the amounts won by some players equals the combined losses of the others.

In the financial markets, options and futures (excluding transaction costs) are examples of zero-sum games.

For every person who gains on a contract, there is a counter-party who loses.

Generally, applications of the zero-sum game in real life are difficult given that measuring gains and losses can be complex.

However, major shocks can see both winners and losers emerging.

The outbreak of the coronavirus has led to significant losses on global and financial markets but has also led to gains in certain areas.

For example, the slump of oil prices has translated into an advantage for oil-importing nations. In this article, we identify four counters on the ZSE that could experience an upliftment as a result of Covid-19:

Econet Wireless Zimbabwe – As more precautionary measures are taken, employers will encourage workers to “work from home”.

This could increase the demand for data and voice given the need to conduct video-conference meetings;

Simbisa Brands – The company’s innovative dial-adelivery service should see a surge in orders as individuals and households stay in-doors;

OK Zimbabwe – In the short term, food retailers are set to benefit from increased volumes on the back of panicbuying; and

Cassava Smartech Zimbabwe Limited – As the awareness campaigns continue, more people will become germophobic and desist from using physical notes and coins.

This could translate to increased transaction volumes on the Eco-cash platform.

Overall, we have witnessed some losses on the ZSE on the back of the impact of the fungibility suspension.

In our view, such shocks present an opportunity for investors to buy into some dips.

Value-scavengers should be taking positions in these four counters!

Batanai Matsika is the Head of Research at Morgan & Co and he can be contacted on +263 78 358 4745 or email: batanai@ morganzim.com

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