Sentiment on the Zimbabwe Stock Exchange has gone on a free fall, bearing testimony to the dwindling appetite for local shares, affecting the viability of stockbroking companies. The ZSE is at the mercy of wider prevailing economic challenges. This year, the ZSE’s industrial index has fallen 12 percent, highlighting deteriorating confidence levels among investors.
With the mainstream index falling at a weekly average of 1 percent since January 2, and with no signs of improved sentiment, the first half performance is likely to record a loss in the region of 25 percent to 30 percent, analysts predict.
Suppressed earnings reported so far and a weak operating environment is expected to further suppress momentum on the equities market. As such, the market may continue experiencing the current trading patterns marked by a bearish trend.
Foreign portfolio participation which was at 60 percent in the same period last year remains the backbone of market activity, contributing over 72,3 percent of the total turnover for the first 2 months of the year, showing the lack of ability from the local investors.
“The operating environment remains tough and is expected to get tougher as we progress,” an analyst with a local research firm said.
“I don’t see an immediate recovery.”
Weekly turnover has been averaging less than $6 million driven by declining volumes. This translates into average brokerage of $120 000 shared among 14 stock brokers. Trading remains confined to a few heavyweight stocks as the risk and return spectrum of many firms listed on the local bourse widens with increasing economic fragility.
“The tough operating environment has had significant impact on business performance in the previous year,” said Jerome Negonde a markets analyst.
“Three weeks in the reporting season, it has emerged that 2013 earnings can be viewed as a portrait of the hurdles that the business environment experienced with most companies exhibiting pressure on margins, culminating in little surprises, thus below earlier projections by most analysts.”
In addition, recent earnings have been achieved at a time when the economy is experiencing a significant decline in economic activity, tight liquidity constrains, weak demand totals, low disposable incomes, increasing weight of imports, worsening the balance of payments position and high interest rate regime discouraging recapitalisation.
Fiscal pressure continues to mount in the wake of a shrinking tax base with both corporate and personal tax collections declining.
Multilateral institutions have remained resiliently adamant on their stance to see the country reduce its external debt before gaining access to additional fiscal support.
The current Government expenditure is skewed towards recurring form and bears testimony of the lack of insight support for critical sectors.
Going forward “only the strong shall survive the squeezed environment” while failure to achieve optimal cost structures, disposal of non-performing assets and renegotiate debt structures to sustainable levels may prove costly to many companies.
Against this background, some companies have been unable to pay salaries on time, some have resorted to cutting down salaries while others have since closed shops.
With little success by both the monetary and fiscal authorities to address the critical challenges as well as key economic variables of the economy, it is highly unlikely in the short-term to attain any economic equilibrium that positively benefits the business.
Unless and until the Government’s thrust is redirected and confined to craft business environment reforms as a method of enhancing business activity, 2014 will be yet another year to exhibit a more constrained operating environment in the business spectrum.
The fortunes of the stock market remain tied to wider economic elements as this form the underlying operating environment for underlying equity assets and consequently earnings.**