By Admire Mavolwane
WITH the industrial index having lost more than half its value since its all time high of 754 608 on August 28, and fast approaching the 300 000 points mark, many investors are cursing fo
r not selling and taking profits prior to December 8. One feels for the investor who had invested his/her savings on the stock market or worse still with a well-known collapsed asset management company. Many speculators who had borrowed funds to invest on the stock market are caught between a rock and hard place as minimum lending rates and share prices have been moving in divergent directions.
The industrial index ended the year without recovering from the sucker punch delivered in the form of the monetary policy statement, losing 43,8% for the month of December. The net closing position of 401 542,93 points represents a mere 288% return for the year, which pales in comparison with returns obtaining in the money market towards the end of the year, and is far less than the average inflation figure for the year, which averaged 365,25% to November. On the other hand, the mining index came out shining with a 1 855% growth for the year. Investors who managed to get hold of the shares in this otherwise thinly traded index, should be smiling.
The inability of the stock market, and in particular the industrial index, to provide real returns is more as a result of the change in monetary policy rather than the poor performance of listed companies as some managed to produce earnings growth in line with or even in excess of, “real inflation”.
A look at the share price movements shows that the year 2003, was indeed the year for mining shares with five out of the listed seven counters dominating the top 10 movers for 2003. The industrials represented in the top performers were the illiquid and thinly traded stocks, probably indicating that supply and demand factors had more influence on their share prices rather than fundamentals and general market sentiment.
Supporting the conclusion that were it not for the shift in monetary policy 2003 could have turned out to be a fruitful year for stock market investors is the fact that, only one counter recorded a decline while the rest were in positive territory. Conspicuous in the bottom end are banking and insurance counters, whose pariah status has continued for the second year running.
The financial sector is still in turmoil, with the liquidity crunch continuing and one prominent banks occupying the starring role. This allied with the collapse of an asset management boutique and the closure of Century Discount House and the possible contagion effects is likely to further dampen sentiment towards this sector.
Also interesting to note is the fact that of the five counters that were listed during the course of the year, three of them are in the bottom ten, with Dawn Properties having the notable distinction of being the only counter to retreat.
After listing at $81, it closed at $26 per share, which equates to a massive 70% decline in some investors’ net worth. Thus, with the exception of Celsys and Willdale, the newcomers did not provide a good showing.
The New Year has started on a very weak note, with the industrial index continuing on its downward trend, closing on 340,051.34 on Wednesday. Volumes have remained thin suggesting that most investors have adopted a cautious approach. Given the uncertainties prevailing in the stock market, the money market where a two tier interest rate market now exists, and the foreign currency market ahead of the implementation of the controlled auction system, investor apathy is surely not unexpected.
Amidst all this confusion and anxiety, corporate news has continued to flow with First Mutual and Tedco publishing a press statement and a further cautionary announcement respectively. First Mutual advised that its asset management subsidiary has exposure to beleaguered ENG Capital. The group further advised that precautions to contain any potential prejudice that may arise from the general effects of the current market conditions had been effected. The amount of exposure was however not quantified.
Tedco Ltd advised shareholders that the ongoing restructuring process is at an advanced stage and full details of the demerger will be made available to them once the regulatory approvals have been obtained. Shareholders were as usual advised to exercise caution in dealing with their shares.