Bull run on Zimbabwe Stock Exchange

A rally in equities is seen continuing in the short-term as investors and asset managers
scurry for safety amid growing inflation concerns.
Investment analysts say a rally, which started in May and saw the key industrial index
jump 16,8% to close at 162,34 points, points to the beginning of a bull run.
The mining index outperformed industrials in the same period, rising by a massive 18,9% to
close at 69,63 points lifted by gains in heavyweights such as RioZim.
On a month-to-date basis, the industrial index is up 10,42%. After a 3,83% decline in Q1,
stocks have made a major comeback.
Analysts say this is the beginning of a bull run, but warn the rally could fizzle out as
asset managers shift investments from equities into fixed income investments.
With interest rates now under cap after a central bank order to lower lending rates last
year and uncertainties over bond notes, investors have been taking positions in equities.
Amid rising inflation concerns, the stock market is proving a safe haven for both
individuals and asset managers alike.
But does the equities market still have an upside? Analysts see shares prices rising
further.
“It’s a bull run. But its now an issue of how long it will last,” an investment analyst
with a leading stockbroking firm says.
This signals yet another rally less than six months after a Q4 bull run last year
triggered by news central bank chief John Mangudya was forging ahead with plans to
introduce bond notes.
MMC Capital co-founder Itai Chirume says a glut of Treasury Bill (TB) maturities in April
meant money found its way into other asset classes such as shares.
“Investment returns are low on the money market after the RBZ capped the lending rate at
12%. This means there is not much incentive to keep funds in the money market,” Chirume
said this week.
“Returns for money are very low, while there is a lot of pressure on these funds to find
an investment home.”
Stocks seen as blue chip have enjoyed a good run on the ZSE. Zimbabwe’s largest mobile
network operator, Econet Wireless Zimbabwe, was the centre of attention for investors
after closing a US$130 million rights issue.
British American Tobacco (BAT) has been on the rise and is trading at a premium to its
book value and P/E multiple of 44.
On a quarter-to-date basis, Econet is up 111%. Ariston is up 80%. Meikles has also had a
fine run gaining 133% in the same quarter.
Chirume says the party could come to a stop soon, however, as government introduces
various paper on the market.
“We have also seen a bit of paper coming into the market. This could slow equities. Also
government has issued some CPI+ paper. Depending on how much paper comes to the market, we
will see some of the money being split between equities and this paper,” he said.
Government paper and profit-taking could see the market sobering up a bit in the short-
term, he says.
Others say the market is testing its resistance after a peak of 2013, an election year.
Its peak since the multi-currency system was US$6 billion in market capitalisation May
2013.
The ZSE breached the US$5 billion point in terms market capitalisation last week.
“We are approaching elections and the last time we had an election, we experienced a peak
point for the market. A look at the just-ending reporting season shows that a few
companies are doing ok in terms of earnings such as OK (Zimbabwe) recently.
“Also, asset managers are getting a bit of funds from clients,” an investment analyst with
a stockbroking firm said.
“We could see the market rallying right through the end of this quarter. After that, we
could see a bit of profit taking.”
The money market is not as hot anymore after Mangudya cut interests rates last year.
“When will the market say this is it? That is difficult in terms of value. Most people who
have shares are not willing to sell; when they sell, they don’t know what to do with the
money,” the analyst said.
More worryingly, the biting cash shortages have seen banks failing to pay for imports.
“We see strong buying appetite pushing the ZSE up in the short-term as buyers pay a
premium,” an analyst with a leading stockbroking firm said.
But already some of the companies are trading way above their book value and with strong
earnings to back the share prices.
Companies such as BAT, Delta, Econet and Seed Co are some of the companies trading at a
premium to their books values.
For instance, Econet, the country’s largest mobile network operator by subscribers,
reported a decline in both top and bottom line earnings.
Profits fell by 10% to US$36 million from US$40 million.
BY Chris Muronzi

















