Zimbabwe Stock Exchange loses close to $1b

The equities market is set to close the year nearly 20 percent lower and having shaved off almost $1 billion in market capitalization, a performance below analysts’ expectations, reflecting a sick underlying economy.

By today, the industrial index was down 19.35 percent to 163 points while capitalization plummeted to $4 208 871 774 from $5 203 129 775 on December 31 2013. Most analysts had projected that the market would struggle this year, but still expected it to record marginal growth.

An economic slowdown, which saw the government slashing its growth forecast from 6.1 percent to 3.1 percent, saw consumer-facing entities on the local bourse reporting marked declines in volumes and growth, notwithstanding high foreign investor appetite for the counters.

Lynton-Edwards Stockbrokers research analyst Kudzi Sharara said the underperformance of ZSE would also be mirrored by the overall economy warning that Zimbabwe may yet miss its revised gross domestic product growth rate.

“The market is 17 percent down and it has not met our expectations because we had projected that it would close the year between five and 10 percent in the positive,” Sharara said.

“At 17 percent in the negative it is way off the mark. That the market is not performing well is something that we had seen in the half year and we had re-projected that it would close the year flat or up five percent but again 17 percent is something that we had not expected.”

Analysts blame lack of clarity around the indigenisation policy, which compels foreign investors to sell controlling stakes to locals, as well as the cost of doing business in Zimbabwe for the underperformance of the bourse.

“Despite this fall, we believe that it is in line with companies’ performance. We had expected companies like Innscor and OK to register revenue growth of five percent, ahead of the projected GDP growth rate, but again that was not the case, which might be indicative that the country might not achieve the projected growth rate of 3.1 percent,” Sharara said.

Delta, the largest company on the exchange and accounting for a third of the ZSE’s total market capitalization, saw its second quarter lager beer volumes fall 29 percent below the same period last year, pushing half-year revenue 4 percent lower, reflecting weakening consumer demand.

This forced finance minister Patrick Chinamasa to lower excise duty on alcoholic beverages to 40 percent from 45 percent in a bid to stimulate demand.

Analysts said some listed companies have struggled to retool due to the undervaluation of their assets which may discourage creditors from lending them. They cite the example of the now de-listed agro-industrial concern Interfresh, which failed to raise $5 million as it had an understated market value of $200 000.

MMC Capital research analyst Kudzai Samudzi said companies with viable business models and good corporate governance are better placed to attract fresh capital in an economy where funds are expensive and banks are charging interest rates that are way above the inflation rate.

He said despite its weak performance, the exchange remained a viable platform to raise capital.

“While plans of setting up a secondary bourse are welcome, going forward we are likely going to see domestic-foreign partnership in some companies,” Samudzi said.

“This, in turn, may result in government realigning some of its policies to attract this capital and stimulate growth. As you might be aware, the minister of finance has already hinted on bringing more clarity on the indigenisation policy.”

Official ZSE data shows that the value of special bargains as at December 17 stood at $116 million compared to $44 million recorded last year, driven by transactions such as the takeover of BancABC by an investment company co-owned former Barclays Plc chief executive Bob Diamond and African entrepreneur Ashish Thakkar.

Analysts have questioned the continued listing of some stocks on the 66-counter bourse, many of which have turnover barely exceeding their listing expenses.

Powerspeed chief executive officer Hilton Macklin said while the prevailing economic environment is not conducive for most manufacturing companies – forcing some to become mere retailers – maintaining a presence on the exchange remained a viable option.

“I think if we weren’t listed I don’t think we would list but we are already listed. So to remain listed is not a bad thing and I have seen that it does put us in a better position when we need to borrow,” Macklin said.

“We plan to grow in the coming year and that’s going to be funded. Unfortunately we can’t fund it from creditors. You’ve got to fund it from shareholders’ funds because of the Zimbabwe situation. We do have a big need for funding so I don’t see any likelihood of us delisting for the time being.”

A survey carried out by the country’s statistical agency found that about 30 percent of registered companies in Zimbabwe are generating less than $5 000 annually, reflecting the parlous state of what has become largely a trading economy following the collapse of manufacturing capacity.-The Source

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