Selling pressure mounts on ZSE

Published: 25 November 2017

Selling pressure is mounting on the Zimbabwe Stock Exchange (ZSE) as investors rush to exit positions amid fears stocks will fall even harder in the next few days as market correction triggered by last week's military intervention in Zanu-PF politics takes a toll on the bourse.

Equities have been on the decline since last Thursday when the military placed the then President Robert Mugabe under house arrest and announced a partial take-over.

On Monday, the mainstream industrial index gave up a further 10,48% to close at 387,38 points and gave up further gains on Tuesday after another 10% plunging that saw market value to US$9,9 billion from US$11 billion Monday.

Industrials gave up an additional 5,07% to close at 329,63 points weighed down by loses in Old Mutual, OK and Padenga down by 19,97% to close at US$5,93, 19,09% to close at 30 US cents and 19,75% to close at 65 US cents.

According to Investor's Report rankings to October 31, only 16 companies on the ZSE were trading at a discount to their book values while the remaining counters were trading at 3x premiums to their price-to-book (P/B) values. On the extreme, P/B premiums of as 60 for some companies were recorded.

Some companies had P/Es as high as 300. This essentially means that investors were willing to pay US$300 for a dollar in earnings in a company.

The rise in shares came against minimal and zero growth in sales and earnings in most companies.

MMC Capital co-founder Itai Chirume says the US/RTGs discount is seen narrowing going forward, adding this had influenced investors to exit positions.

"Already, the market has taken a view that inflationary pressures are not valid anymore. There could however still be a reversal of this trend. When the market corrects, it could create buying opportunities as well," Chirume notes. "The market had been going up on the expectation of a widening discount between the US dollar and the RTGs. This reversal is an indication of narrowing discounts. This could mean that investors believe that there could be an arrest of the inflationary situation. Now, RTGS is being valued much better. The premium could be thinner."

He added that there was a tendency on the market to overdo things where stocks tend to fall steeper than they should and gain excessively.

The ZSE key index had gone up by 260% on YTD basis.

Other stockbrokers see the market falling further.

IH Securities last week placed sell recommendations on many blue chips such as BAT, Econet, Delta, Innscor, Seedco and the rest of the Innscor linked counters, which enjoyed a fine run on YTD basis.

BAT, which peaked at US$37, is seen coming down significantly with a target price of US$8,17. The counter, according to IH, has a downside potential of 77,9%. Delta Corporation is seen giving up gains by as much as 46,8% while Econet is seen coming down 49,9%.

Given Delta and Econet weightings on the overall value of the ZSE, this means equities could come down to around US$6 bn valuation.

Chirume says the market would have tumbled further had it not been for circuit breakers in the market.

The ZSE has a 20% circuit breaker limiting intra-day gains and declines to contain crashes and speculative jumps. As of Monday, the premium on Old Mutual, which was 500% just before the military action was down 250%.

ZSE acting chief executive Martin Matanda says the market decline reflects the materiality of the prevailing political events.

"The magnitude of the fall seems to be in line with the materiality of the political events of the past week and also signal the end of the recent Bull Run," he said. "The Bull Run had to end at some point, normally precipitated by profit taking, but in this case the end was triggered by the political developments. This does not mean however that there is no potential for another bull run to start."
- the independent

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