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Zimbabwe: Equities Best Bet for Investors
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Financial Gazette (Harare)
1 May 2008
Posted to the web 2 May 2008
Harare
KINGDOM Stockbrokers (KSB) says the outlook for the second quarter will largely depend on major policy decisions on interest rates and inflation.
But given the continued negative real investment rates emanating from a hyper-inflationary environment and controlled nominal investment rates, non-interest bearing assets such as equities would continue to be the logical investment destination for funds, the securities firm said.
KSB said in its report on the second quarter that the inflation outlook remains bleak on the back of the following factors:
l There has been persistent foreign exchange shortages that has caused firms to source the commodity on the illegal parallel market at rates that are very much depreciated;
l Excessive money supply growth has continued unabated. KSB expect money supply growth to continue rising on the back of liquidity inflows into financial markets emanating from the subsidised credit facilities designed to support the productive sectors of economy especially agriculture and retailers and help government access cheaper funds from the financial markets using its Treasury bill instrument whose rate remained fixed at very low rates;
l Continued food (maize and wheat) deficit, which will cause a significant increase in the prices of basic commodities; and
l High government budget deficit to meet, among other things, high social welfare services, which will be financed by borrowing from the domestic banking sector through cheap Treasury bills.
The interest rate outlook, KSB said, remains controlled and directed towards a low interest rates policy through subsidised credit facilities designed to support the productive sectors of the economy. The government, as the biggest borrower on the financial markets, will be negatively affected if the Treasury bill rate was to be increased. As a result, the one-year Treasury bill rate has been held constant since last year.
The market, as it stands now is not for short-term speculative investors but those who are in for the long haul beyond the current economic hardships.
In the selection of stock for the second quarter of 2008, we have considered the following factors:
l Companies with well structured balance sheets, that is, strong cash flow positions and low gearing;
l Mining counters, that have preferential exchange rates through support price adjustment and whose international prices have been on the rise. These counters have also not been affected by price controls;
l Tourism sector as a more speculative buy in the event that there is an upturn in the economy;
l Currency hedge counters; and
l The financial sector which now looks very stable.
Investors should always monitor their holding in small cap counters given the hyperinflationary conditions and their weak balance sheet positions, KSB advised.
Top ten stock picks
Top ten medium term stock picks
ABCH
Banks have remained largely stable and were not be affected by the price controls. ABCH has some regional operations that can be a good hedge against inflation.
Regional operations for the company are now contributing a lot to the company bottomline. We are also expecting very good earnings from the banks for the period to June 2008.
Afre
Afre is the second largest insurance company in Zimbabwe after Old Mutual and we expect the company to continue doing well as it is well diversified and has got a huge asset base. Looking at the performances of the stocks on the ZSE on a yearly basis, we expect the company to do well in the second quarter of the year.
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Bindura
Bindura has been good performer since the takeover by Mwana Africa Limited and has been reporting very good earnings and dividends since then. International nickel and gold prices have been firming from last year and that should benefit Bindura. With the firm international nickel prices we expect the counter to remain very strong in the medium to long term and should do well given that they have preferential rate from the Central Bank.
Dawn
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