‘Zim needs to re­store in­vestor con­fi­dence’

Chronicle (Zimbabwe) - - Business - Rumbidzayi Zinyuke

ZIM­BABWE needs to con­tin­u­ously work on restor­ing in­vestor con­fi­dence to gain back the mo­men­tum that has been lost on the lo­cal stock ex­change in the past three years.

Although the coun­try’s eco­nomic growth prospects have de­clined sig­nif­i­cantly, push­ing the equities mar­ket down with it, ex­perts say the coun­try can­not af­ford to keep los­ing in­vestors’ con­fi­dence.

In­vest­ments and equities an­a­lyst Mr Al­bert No­rumedzo says there is a co-re­la­tion be­tween stocks and the gen­eral eco­nomic per­for­mance.

“Eq­uity mar­kets mir­ror the eco­nomic growth tra­jec­tory. How­ever, the coun­try’s eco­nomic growth tra­jec­tory has been on a de­cline and this has been re­flected in the per­for­mance of the stock ex­change. The over­ly­ing as­sump­tion is that the same com­pa­nies listed on the stock ex­change are op­er­at­ing in a poorly per­form­ing econ­omy. So it be­comes dif­fi­cult for the stocks to post any sig­nif­i­cant gains,” he says.

A boost in in­vestor con­fi­dence is what the equities mar­ket needs but that can only come about if there is cer­tainty that in­vestors will not lose out.

“In­vest­ment thrives on cer­tainty. At the mo­ment peo­ple are not sure what is go­ing to hap­pen in the Zim­bab­wean econ­omy so they adopt a wait-and-see at­ti­tude,” Mr No­rumedzo says.

Weak in­vestor sen­ti­ment has haunted the lo­cal ex­change the bourse los­ing more than $3,5 bil­lion of its value since 2013.

The bear­ish trend has been wors­ened by the lit­tle fund­ing that is avail­able on the mar­ket and in­tense money mar­ket illiq­uid­ity.

The ZSE, which has op­er­ated from Harare since 1951, once ranked among the big­gest and best per­form­ing bourses in Africa, but it has gone from bad to worse as the econ­omy has main­tained its down­ward trend for more than a decade.

The ex­change now has a pal­try 62 listed com­pa­nies, with a to­tal mar­ket value of $2,7 bil­lion — down from an all-time high mar­ket cap­i­tal­i­sa­tion of nearly $6 bil­lion that was recorded in the first week of Au­gust 2013.

Tra­di­tion­ally, be­fore cor­po­rate re­sults are re­leased, in­vestors take po­si­tions in those stocks with the po­ten­tial to re­port strong earn­ings. This usu­ally trig­gers in­creased ac­tiv­ity on the stock mar­ket, driv­ing share prices and de­mand by for­eign and lo­cal in­vestors.

But the earn­ings sea­son has failed to in­spire equities mar­ket con­fi­dence as turnover for the month of Au­gust came off 49 per­cent to $7 mil­lion, the low­est since Jan­uary 2015.

Many com­pa­nies re­ported marked de­clines in rev­enues and prof­itabil­ity while only a few re­turned to prof­itabil­ity.

By close of the month, vol­umes also re­duced 27 per­cent to 41 mil­lion shares, which was also the low­est since Jan­uary last year.

To­tal value traded in the eight months to Au­gust came in 38 per­cent weaker to $107 mil­lion com­pared to $157 mil­lion achieved in the pre­vi­ous year.

Un­til re­cently, the ZSE has been driven by for­eign in­vestors whose par­tic­i­pa­tion rose from 23 per­cent in 2010 to 36 per­cent in 2011, 39 per­cent in 2012 and 41 per­cent in 2013. How­ever, for­eign par­tic­i­pa­tion has been de­clin­ing as con­fi­dence in the econ­omy di­min­ishes.

Data from the ZSE shows that in­ter­est from for­eign buy­ers has de­clined sig­nif­i­cantly with pur­chases from that seg­ment fall­ing nearly 40 per­cent in the seven months to July 2016. De­lays in the re­mit­tance of cap­i­tal could be to blame. Re­cently, bev­er­ages maker Delta Cor­po­ra­tion said it had a pay­ment back­log which in­cluded $15 mil­lion div­i­dend pay­ments. And per­sist­ing cash short­ages have also not made things eas­ier, ren­der­ing op­er­a­tions for most com­pa­nies more dif­fi­cult.

The pro­posed in­tro­duc­tion of bond notes as an ex­port in­cen­tive has also in­creased doubts within in­vestors as they be­lieve that Gov­ern­ment could be in­tro­duc­ing a new cur­rency that could mimic the de­mon­e­tised Zim­dol­lar.

But the Re­serve Bank of Zim­babwe and the ZSE have as­sured for­eign in­vestors that the re­mit­tance of cap­i­tal, cap­i­tal ap­pre­ci­a­tion and div­i­dends, is first pri­or­ity in the cat­e­gory of pay­ments, lit­tle might change in the par­tic­i­pa­tion of for­eign­ers on the bourse.

The RBZ also ad­vised that the ZSE will con­tinue to be priced in US dol­lars in spite of the in­tro­duc­tion of bond notes.

Mr No­rumedzo, how­ever, says some­times the is­sue is that peo­ple have lit­tle un­der­stand­ing of what is at play or the mea­sures Gov­ern­ment wants to im­ple­ment.

“It’s good that Gov­ern­ment has been en­gag­ing the busi­ness com­mu­nity and com­ing up with re­forms meant to im­prove the ease of do­ing busi­ness. The in­tro­duc­tion of SI64 as a mea­sure to ad­dress pro­duc­tiv­ity in the in­dus­try is also a plus. It’s just a ques­tion of whether the com­pa­nies will boost pro­duc­tion which in turn will en­hance lo­cal man­u­fac­tur­ing and bring about the de­sired eco­nomic growth and bring the ZSE on the mend,” he said.

How­ever, it is not only the ZSE that has ex­pe­ri­enced such set­backs. Equities across the con­ti­nent have also been on a free fall in the past year, ow­ing to the fluc­tu­a­tions in com­mod­ity prices on the global mar­kets.

“Across Africa, equities are also af­fected by what is hap­pen­ing on the global econ­omy. This in­cludes di­min­ish­ing de­mand for com­modi­ties and low prices per­tain­ing on the mar­ket. Coun­tries that rely on com­modi­ties like Zam­bia, An­gola have been hit hard and their stock ex­changes have also re­flected this,” said No­rumedzo.

The ZSE has been the sec­ond worst per­former in the re­gion shed­ding off 13,88 per­cent since be­gin­ning of the year ac­cord­ing to African Fi­nan­cials.

Lead­ing the re­gional fall­ers is the Lusaka Stock Ex­change All Share In­dex (LUSE) which has dropped 23 per­cent on a year to date ba­sis.

Shares in Malawi, Kenya and Botswana have re­duced by 8,96 per­cent, 9,76 per­cent and 9,3 per­cent re­spec­tively while Nige­ria has lost 3,71 per­cent of value since be­gin­ning of the year as re­gional economies suc­cumbed to weak com­mod­ity prices. Some ex­changes have, how­ever, been per­form­ing bet­ter than oth­ers de­spite the dif­fi­cul­ties be­ing faced in their re­spec­tive economies as is the case with, the Johannesburg Se­cu­ri­ties Ex­change (JSE), which has gained 5,23 per­cent.

Ex­perts say if prices of com­modi­ties im­prove, there is bound to be re­cov­ery on the equities mar­kets as well.

And most com­modi­ties, with the ex­cep­tion of cop­per, have been shed­ding the losses recorded for the bet­ter part of 2014 and 2015.

Gold ral­lied in the first half of this year to reach a twoyear high of $1 400 in July and ex­perts claim that there is still up­side. The plat­inum group metals have also con­tin­ued to gain up­side mo­men­tum.

On a year to date ba­sis, gold and plat­inum prices im­proved 20 per­cent and 22 per­cent re­spec­tively, giv­ing hope for im­prove­ments in ex­ports in min­ing.

But the ZSE might not en­joy th­ese gains be­cause some of the coun­try’s big­gest min­ing com­pa­nies are not listed on the lo­cal bourse.

Only four min­ing houses —Hwange, Fal­gold, RioZim and Bin­dura — are cur­rently listed on the lo­cal bourse.

Zim­plats which re­ported a $7 mil­lion af­ter tax profit for the half year to June 30, 2016 com­pared to $74 mil­lion loss in the prior year, is listed on the Aus­tralian Stock Ex­change.

Hope­fully the pro­posed Mines and Min­er­als Amend­ment Bill that was gazetted by Gov­ern­ment re­cently will re­solve the is­sue. The Bill seeks to out­law giv­ing min­ing rights or ti­tle to pub­lic com­pa­nies un­less the ma­jor­ity of its shares are listed on the se­cu­ri­ties ex­change in Zim­babwe.

This might be the only way th­ese big com­pa­nies will list on the lo­cal bourse as some have made it clear that they do not plan to do so with­out a nudge.

Vast Re­sources PLC, for­merly African Con­sol­i­dated Re­sources (ACR), is one such com­pany.

The firm owns Pick­stone-Peer­less Mine in Chegutu and its chief ex­ec­u­tive of­fi­cer Mr Roy Pitch­ford is on record say­ing there are no cur­rent plans to list on the ZSE but the gold miner will “al­ways com­ply with the laws of the coun­try, as they may ap­ply to any of its op­er­a­tions in Zim­babwe”.

“Pick­stone-Peer­less is op­er­at­ing well and we in­tend to con­tinue min­ing (so) if it be­comes manda­tory to list (on the ZSE), we will com­ply,” said Mr Pitch­ford.

The Se­cu­ri­ties Com­mis­sion of Zim­babwe is even will­ing to find ways of mak­ing it eas­ier for com­pa­nies to list on the lo­cal bourse.

SECZ chief ex­ec­u­tive of­fi­cer Tafadzwa Chi­namo says min­ing com­pa­nies are free to high­light ar­eas of con­cern so that they can be at­tended to.

“I know that list­ing on a stock ex­change comes at very huge ex­pense, but if the min­ing com­pa­nies can iden­tify what they feel are con­straints for them to list on the ZSE, we can tone that down.”

He says if min­ing com­pa­nies are listed lo­cally, it will al­low the na­tion to know what is be­ing mined and the rev­enues gen­er­ated from it. — Zim­pa­pers Syn­di­ca­tion.

Ing­webu Brew­eries re­trenched work­ers demon­strate at the com­pany premises in this file pic­ture

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