Zimbabwe: Local Stock Market Foreign-Driven

ZIMBABWE'S stock market continues to trade cheap as foreign investors load up on the country's large capitalised counters, taking advantage of low domestic liquidity, an MMC Capital stockbroker said this week.

In an exclusive interview with businessdigest to review the market's trading performance for the six months ended June 30 2012, Edward Mapokotera said the half year of trading had been difficult for the market.

"The first half has been pretty tough as we have generally seen more sellers than buyers of volume, signalling the critical liquidity challenges being faced by domestic investors.We have seen that the participation of our major institutional investors such as pension funds has been very limited, leaving the critical component of trading to be driven by foreign investors," Mapokotera observed.

He said the market had seen other challenges following the suspension of Remo and Interfin Stock brokers after intervention by the authorities. Such developments were negative for the market and had to be taken as lessons.

"However, it was sad that some of the investors who innocently bought the disputed shares on the open market were followed up and inconvenienced. Such developments are negative for the industry, particularly foreign investors, who have always believed that when one buys shares on the exchange they are in fact in negotiable order," he said.

Mapokotera said when one looked at the number of proposed or mooted rights issues, it indicated that a number of Zimbabwean companies desired to be recapitalised, suggesting they needed to be re-tooled.

Such companies would not be attractive to the bulk of foreign investors unless they could get control of the assets for a bargain and then recapitalise it.

The trading trends on the ZSE support the view that foreigners had a preference for the larger cap counters.

An analysis of ZSE trading statistics for the half year ended June 30 2012, paint an interesting picture where foreign investors remained net buyers by value and not volume.

Total market turnover by volume of shares traded was 2,249 billion worth US$257 million. These figures compare well with 2,1 billion shares worth US$224 million that changed hands in the first six months of last year, whilst in the second half of 2011, 2,5 billion shares valued at US$253 million exchanged hands.

A closer look at the figures show that foreign investors accounted for US$202 million or 73% of the total value of shares traded on the ZSE in the six month period, lending credence to the fact that foreigners were driving the ZSE.

Between January and June 20-12, foreign sales were 408 million shares sold worth US$78 million, whilst purchases totalled 370 million shares with a total value of US$124 million.

This meant foreign investors were targeting low cap, penny stocks for sale whilst shifting their focus to the high value higher capitalised counters. Brokers say demand for the larger caps among foreign buyers is growing.

"The volume of shares sold in the first six months exceed the purchases but the value exceeds sales, meaning that the buyers are selling the cheap penny stocks which are your low capitalised counters and switching to the higher-priced larger caps. The larger caps also represent your large well-funded solid businesses such as Delta, Econet and Innscor amongst others that are perceived to have fewer structural and funding issues," Mapokotera said.

"They are proving attractive to investors as they are unlikely to require shareholders to cough up more money to fund operations in the immediate future. They have strong cash-generating ability and can fund ongoing growth from internal cashflows. They are also attractive to lenders and can attract international capital from debt and equity. Shareholders are likely to receive fair compensation for their share on exit and are less likely to face diminution of value due to the dilutive nature of any future fund-raising activities such as rights issues."

The ZSE market capitalisation declined 10% to US$3,342 billion from US$3,689 billion as at December 31 2012. The industrial index also slipped 10% from 148,86points to 131,96 points while the mining index slumped 25% from 100,70 points to 75,70 points as at June 30 2012.

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