Come the 3rd of August 2020, the Zimbabwe Stock Exchange (ZSE) will be back on steam again.
The market will re-open without the dual listed stocks; namely Old Mutual Limited, PPC and SeedCo International.
This of course is a major blow in terms of market depth.
Further, there has been a lot of damage made and Zimbabwe has effectively been erased on the radar of frontier market investors.
We have highlighted before that financial markets across the world are evolving and while investors now have a plethora of investment options, it has also become very competitive to attract global capital flows.
This means that governments in developing nations like Zimbabwe will have to be smart and innovate in-order to attract portfolio and foreign direct investments.
Inconsistent policies and poor communication have worked against the development of local capital markets.
lnternational appetite has also waned in the light political uncertainty and lack of foreign exchange liquidity (high repatriation risk).
That said, we expect the bulls to be back raging again on the stock market.
Two fundamental things have happened on the local front; (1) the official exchange rate has creeped up and stocks will have to re-rate and (2) there is lots of institutional money that is looking for a home on the market.
These two factors should trigger a bull run as soon as the market re-opens. Morgan & Co Research has maintained that the stock market offers a feasible option to hedge against value destruction over the long term.
However, timing is everything on the stock market and the 3rd of August 2020 could be the best time to be BUYING.
In his book, “Stock Market Intelligence, Investing Made Easy”, Jeff Luke proposes the PALMS Filtering System as a technique for stock picking.
Investors should answer the following question before buying a stock; Profitable – Is the company profitable? • Adaptable- Is the company adapting to changing technology?
• Loyal Customers- Are customers devoted to the company’s brand?
• Moat to Protect- Does the company possess a durable competitive advantage? • Sensible Price- Is the stock selling at a price that makes The PALMS technique is indeed useful for identifying good stocks to BUY as it is in line with the stock analysis methods that we employ as a Research House.
Remember the key is BUYING Low and SELLING High.
We like companies with regional operations, that are well managed or are net exporters as they provide value preservation opportunities to investors with a long-term perspective.
Some of our top picks include Ariston, ART, Padenga Holdings, Old Mutual Zimbabwe (FINSEC), Hippo, Simbisa Brands, SeedCo Limited, OK Zimbabwe and Innscor Africa.
Batanai Matsika is the Head of Research at Morgan & Co. He can be contacted on +263 78 358 4745 or email: batanai@morganzim. com