13 February 2013

Zimbabwe: Foreign Investors to Dominate ZSE

FOREIGN participation is expected to dominate trading on the Zimbabwe Stock Exchange (ZSE) this year, despite increased political rhetoric emanating from the country's warring political parties, analysts said.

This follows the firming of prices on the stock exchange in January, with some meaningful growth in volumes of trade and prices, albeit concentrated on blue chip shares.

The Zimbabwe Stock Exchange (ZSE) said the local bourse had been rated one of the best performing bourses in the world in the month of January 2013.

The ZSE's main industrials index added 20,3 percent in January, probably its best performance since dollarisation in 2009.

Foreign investors seem to be behind the ZSE's rally, with South Africa-based players like Allan Gray, African Alliance and Renaissance Securities said to be behind most of the deals.

The Nigerian Stock Exchange was a distant second, having gained 13,87 percent during the month of January.

South Africa's FTSE/JSE Africa All-Share Index only managed a 3,67 percent gain.

Most bourses, however, seem to have started the year on a positive note, with the Nairobi Securities Exchange Ltd All-Share Index having gained 9,11 percent.

The Mauritius Stock Exchange SEMDEX Index also closed positive, up 4,15 percent in January.

Economist Farayi Dyirakumunda told The Financial Gazette's Companies & Markets (C&M).that foreign participation was expected to dominate equities trading on the stock market this year.

"Given the eventual prospects of high and sustainable growth in the local economy and listed counters, foreign participation is expected to increase on the Zimbabwe Stock Exchange," he said.

Dyirakumuda said there would be selective buying in defensive consumer related stocks such as Econet, Delta, Innscor and OK Zimbabwe.

"As at the close of trade on Friday, February 8 2013, the ZSE Industrial Index returned a 20,72 percent year-to-date gain which compares favourably to other Sub-Saharan markets which saw Nigeria (NSE All Share) gaining by 18,64 percent, Kenya (NSE All Share) 13,24 percent, Ghana (GSECI) 10,68 percent and Mauritius 5,07 percent," he said.

Economic commentator, Eric Bloch, said indeed the Zimbabwe Stock Exchange's performance was greater than elsewhere in the region, noting that investors were leaning towards equities.

"This will be motivated by a perception that such investment is a hedge against the negative consequences feared if there is a premature reversion by Zimbabwe to its own currency, in contradistinction to continuance of the multi-currency regime; and expectations of economic growth later in the year, after national elections, which growth would undoubtedly beneficiate major companies," Bloch told C&M.

Bloch said key targets by investors were likely to be Delta, Econet, Dairibord, Innscor and Edgars, among others.

"Banks, because of prevailing confrontations with government in respect of indigenisation, and those directly involved in agriculture such as Interfresh, are not favoured by the market," he said.

Some analysts said the negative sentiment stemming from the indigenisation law and scepticism over calls for elections could contribute to the market capitalisation remaining stagnant during the first half of the year.

Uncertainty about Zimbabwe's future political situation, the bickering around indigenisation and economic empowerment regulations and the prevailing liquidity crunch on the market were responsible for the lacklustre performance of the local bourse last year.

Local traders, mindful of the inherent risks affecting companies listed on the ZSE, were choosing to keep their cash.

After the departure of the multitude of rent seekers that inhabited the market about five years ago, the ZSE now resembles a real stock exchange with adequate balance between long term investors and short term speculators.

Analysts say the risks on the stock market were real and have to be managed. They say it was important to have a system and investment strategy that was easy to follow.

"There is a lot of good advice available from a number of stock brokers but ultimately you have to make the decision yourself. It is quite possible to pick up gem stocks that would give you a better yield than in some developed markets where 10 percent would be considered a good yield," said one analyst.

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