ZSE: A bear or buyers’ market?

THE stock market, in this case the Zimbabwe Stock Exchange, is making a lot of people uncomfortable at the moment.

Since its resumption, following the June suspension that lasted for more than a month, the ZSE has been struggling for direction.

Following the lifting of the suspension, it was all downhill, from a market capitalisation high of $228 billion to $158 billion.

It recovered to reach a high of $217 billion, only to come tumbling again to $190 billion as of Wednesday.

In October alone, the ZSE has dropped from $206 billion to $190 billion.

This $16 billion in just two weeks is making investors nervous.

Is this a bear market or it’s a buyers’ market — that is a question many are probably trying to answer.

By definition, a bear market is when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20 percent or more from recent highs amid widespread pessimism and negative investor sentiment.

The ZSE’s recent high is probably $217 billion recorded on September 15. From then to now, the ZSE has lost just 12 percent, making it safe to say, the market has not reached bear market levels.

The next question is now whether the ZSE can be described as a buyers’ market.

A buyers’ market refers to a situation in which supply exceeds demand, giving purchasers an advantage over sellers in price negotiations.

The competition in the marketplace exists between sellers, who often must engage in a price war to entice buyers to make offers on their stocks.

A buyers’ market stems from the law of supply and demand. This law states that a supply increase amid constant demand puts downward pressure on prices.

An analysis of stock market activity for August and September speaks to the law of supply and demand as it shows that while supply pressure is there, demand has remained firm.

The number of shares changing hands has actually increased showing that buyers are not shunning stocks, but are determining prices for the day.

In September, for example, the market recorded the highest volume of shares changing hands since May 2010 after 1,1 million shares changed hands.

By value, the $4 640 897 039 that got invested was the highest this year.

So as the market tumbles, some investors are busy accumulating shares.

The is an oversupply of stocks and sellers are desperately competing to offload their holdings.

Why is the market falling?

With the economy being the way it is, due to a lot of factors, including Covid-19, both buyers and sellers alike are weary of making big moves, however, buyers especially first time ones, should see this as an opportunity to enter the market.

With a competent stockbroker or asset manager, there are selected stocks that will eventually come right when things turn.

One of the key consideration before making the buy decision is to find out who and why there is this selling pressure.

If it’s mainly to do with poor performance and the poor quality of stocks, and you do not think there is a chance to turnaround the situation, then probably that’s your cue to stay out of the market as well.

To a large extent the performance of the listed stocks has been very poor, with the only reason to buy being the possibility of growth. Economic activity and aggregate demand is very low at the moment and it can only grow.

For the ZSE, one source of selling pressure is desperate foreign investors who could not easily repatriate investments for close to five years. Years of spent up energy is now being released.

Then there is the issue of liquidity, a result of the central bank’s monetary targeting among other reasons. This has left liquidity hungry investors with little option but to sell off their stock holdings, which have enjoyed the biggest increases to meet their cash needs.

What should you

do about it?

Keep investing every month. If you buy stocks when they are down and they resume their upward movement, you will be better off.