Tight monetary stance hinders capital markets activity: FBC Securities

CLOUDINE MATOLA

The decision by the Reserve Bank of Zimbabwe (RBZ) to maintain a tight monetary stance is restricting the amount of local currency available and therefore strangling capital markets activity, FBC Securities has said.

In its latest report, published this week, the securities firm said while the 2024 monetary policy was able to stabilise inflation and exchange rates, it has restricted the supply of the local currency, ZiG,  and it is currently   having a  detrimental impact on  capital markets activity.

“The economy has registered some stability following the announcement of the 2024 Monetary Policy Statement which introduced a new structured currency and extended the multi – currency system to 2030. The policy managed to stabilize inflation and exchange rates. Of note, however, is the continuation of a tight monetary policy which is limiting the availability of local currency and suppressing activity of the capital markets,” part of the report reads.

On the Victoria Falls Stock Exchange (VFEX) all-share dropped by 3.9% to 95.73  in the month of May  2024 from 99.61 on April 30 2024.

 Additionally, market capitalisation fell by 3.9% to US$1.17bn as at May 31 2024 from US$1.2bn on April 30 2024.

On the other hand, the all-share index on the Zimbabwe Stock Exchange (ZSE) increased by 1.4% to end May at 102.14, up from 98.83 on April 30, 2024.

Year to date, the market capitalization, top 10 index, and all-share index have all seen marginal advances of 3.29%, 4.14%, and 2.14%, respectively.

Market capitalization increased by 2.8% to ZW$29.4bn  as of May 31, 2024, from ZW$28.6bn as of April 30, 2024, as a result of these marginal gains.

FBC expects the flow of the United States of America dollar to the capital markets will be constrained. As a result, the securities firm expects a flat sentiment because the market prefers to keep the greenback as a store of value rather than premium of exchange.

“With the market’s preference to keep the United States dollars as more of a store of value than a medium of exchange, we expect its flow to the capital markets to remain constrained, such that a flat sentiment is expected,” reads part of the report.

Meanwhile, Delta Corporation, the largest brewer in the country , was selected by FBC Securities as its top pick on the ZSE. According to the securities firm, record volume and revenue growth have been continuously demonstrated. This demonstrates the sustained demand for its goods.

Additionally, the business defended its margins in spite of the economic hardships.

“The company has consistently registered volume and revenue growth over the years, demonstrating long term sustained demand for its products. Management has also successfully defended margins, despite complexities in the local economic environment characterised by utility challenges (electricity and water) and supply chain disruptions due to geopolitical conflicts,” FBC Securities said.

Tigere REIT was ranked second. FBC Securities said the sector has generally remained insulated from currency headwinds that prevailed, the greater part of 2023, owing to its foreign currency – based income generating ability.

Third on the list, according to FBC Securities, was Hippo Valley Estate. Hippo Valley consistently supplies over 50% of the country’s sugar industry’s production and sales, which are anticipated to increase after the Statutory Instrument 80 of 2023 which previously allowed duty – free sugar imports into the country, was repealed.

On the VFEX, diversified conglomerate, Innscor Africa Limited, topped the bourse’s top pick, demonstrating its sustained solid position to overcome challenges presented by an uncertain global outlook and complexities in the local environment, largely due to its diverse product offering.

Furthermore, FBC Securities, said Innscor’s success can be ascribed to its presence in the staple sector, which is immune to economic headwinds.

“Additionally, the business operates in the consumer staples sector, therefore, demand for its products is largely sustainable even in times of economic downturn,” FBC Securities said.

 In second place is Simbisa Brands which has established itself as a market leader and remains on a growth trajectory and keeps on expanding both locally and regionally.

Padenga Holdings holds the third-place ranking. In addition to supplying crocodile skins Padenga  has also ventured into mining through Dallaglio Investments. The company operates two gold mines namely Pickstone Peerless and Eureka, which currently account for about 82% of Padenga’s total revenue.