FOREIGN investors trading on the Zimbabwe Stock Exchange (ZSE) may be selling rather than buying, but they are not part of the scramble out of emerging markets seen in some other parts of the world. They are only moving to the side-lines for a breather rather than heading for the exit points for good.
This assessment comes from Imara Edwards Securities, Zimbabwe’s largest stockbroker and securities firm and a company close to global investor sentiment after several years of hosting events to attract investment from offshore fund managers. The country is in the throes of an economic depression that has hit all the sectors, placing the government under increasing pressure to turnaround the economic fortunes.
The government is pinning its hopes on the Zim Asset programme which, in the absence of financing to buoy it on, is increasingly appearing to be a case of the State putting all its eggs in one basket — with no alternative economic policy proffered by the administration. Acting Reserve Bank of Zimbabwe governor, Charity Dhliwayo conceded in her monetary policy statement made last month that the economy had stagnated, creating an urgent need to address the challenges before the economy totally collapses. Last month saw significant decline in the valuation of some of Zimbabwe’s heavily capitalised stocks.
The share price at Delta, Zimbabwe’s biggest brewer fell 17 percent in the month. Shares in the Innscor food conglomerate were down by six percent. However, shares in Econet Wireless, the telecommunications firm withstood the trend and retreated only marginally. “This isn’t a stampede out of a risky emerging market. It’s more likely to be a tactical move to the side-lines by astute investors who are positioned to buy into market dips as opportunities arise later in the quarter,” said Tino Kambasha, executive director at Imara.
He also highlighted out that valuations had firmed considerably in the second half of 2013 — up by 10,6 percent — with foreigners eager to buy into the up-trend. However, corporate earnings have been disappointing. Volumes at Delta had fallen 25 percent in the third quarter of 2013. At the same time, there were signs the economy may be entering a deflationary phase.
Year-on-year inflation in December was just 0,3 percent. Nonetheless, the economy is still expected to grow, albeit at a slower pace forecast at about three percent for 2014 versus 3,4 percent and 10,6 percent for 2013 and 2012, respectively. “Zimbabwe has a United States dollar-based economy so investors don’t have to worry about emerging market currency risks. This provides something of a cushion. At the same time, our equity market — in common with stock markets in many sub-Saharan jurisdictions —is bedevilled by tight liquidity. Our biggest stocks tend to be our most liquid stocks.
” Any sell-off here creates an opportunity for astute investors to buy into the dips on a selective basis, with the focus on quality companies with proven earnings potential,” said Kambasha. “We expect market turbulence to persist throughout the first quarter. But there’s a silver lining. Foreigners are positioned to move rapidly back into the market as valuations reach more attractive levels. A rebound is more likely than a free-fall.”
The ZSE has been one of the top performing bourses on the continent in the past few years. New rules to modernise the stock market are expected to kick in this year, with economic commentators intimating that attracting foreign capital would be the best option available to keep companies afloat in light of the current liquidity constraints affecting the economy.