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When the market speaks, it pays to listen

MANY expected it to be downbeat in tandem with the economy, yet the local bourse continues to sail against the tide. In the Zimbabwe dollar era, its buoyant performance was attributable to hyperinflation —— as any good hedge would be expected to react. 

But it has already been adjudged one of the top performers so far this year despite many not giving it a chance when the economy dollarised because there was, and still is, not much hard currency available locally for daily necessities let alone investing. Those who took their chance to buy shares or stuck around even when it appeared as if the freefall was going to persist unabated are having the last laugh.

During the second quarter of 2009, the bourse more than doubled in value. The market cap went up by 122,8% to US$3,715,7 million with illiquid and penny stocks leading the pack. This was after a false start in February when it commenced trading in US dollars. It slumped from the February 19 level of US$2 595,6 million to below US$1 500 million and bottomed out on March 24 at US$1 223 million. Since then it has not looked back. Risk tolerant foreign investors kept the stockbrokers busy in May and June, buying most of the available good scrip. Most locals were selling to raise liquidity to cover their expenses. Old Mutual switches also helped to keep the market active. It got increased impetus when fungibility was restored as some of the proceeds from sales were reinvested on the market.
The top performer for the period was Hippo which posted a gain of 638,9% to US$1,33. This is not surprising for a company which runs one of the most successful agribusinesses in the region. It is regarded as one of the lowest cost sugar producers in the world at approximately US7,5c per pound against an international average cost of US12,5c per pound. Cane yields of 110t/ha are much higher than elsewhere in the region. For instance, South Africa at best achieves yields of 70t/ha. Currently operations are hampered by shortages of cane because the resettled farmers have not fully grasped the farming techniques. The notable flaw of Hippo, as a counter is that there are few freely floating shares in the market. Even a buy order for 500 shares can push the price significantly.   
Of the other counters in the top 10, perhaps National Foods, CBZ and RioZim also have interesting stories —— although not as exciting as Hippo’s —— worth investing in. The trio amassed growth of 358,3%, 328,6% and 281,8% in that order. National Foods is being driven by the local demand for grocery items such as cooking oil, flour and mealie-meal. The company is now selling its products at market prices after the abolition of price controls.
CBZ’s fine run came on the back of a statement that in May, the bank’s share of advances and deposits were 24% and 33% correspondingly.  The duo of CBZ and Barclays controls 50% of national deposits between them and, is expected, together with the likes of Standard Chartered, Stanbic and MBCA, to come out of the woods quicker than other banks. RioZim shareholders recently approved a private placement of shares which will enable the company to get capital injections.
The quintet of Truworths, Afdis, Fidelity, Nicozdiamond and Tractive Power are unexpected candidates in the table of top performers. Presently, insurance is a marginal product as both business and individuals are operating under tight budgets. It takes brave men and women to bet their monies on insurance counters, especially at this point unless there is something that all of us are missing. Maybe for Truworths, investors are counting on the major shareholder, Truworths International, supporting the local business. Even then, it may take much longer for clothing chains to pull through given the stiff competition from clothing boutiques importing apparel from neighbouring countries in an environment of limited growth in disposable incomes.  
The worst performers of the past three months were Redstar, Celsys, Tedco, ABCH and Steelenet losing between 28% and 72% amongst themselves. For the foursome of Redstar, Celsys, Tedco and Steelnet, this position is familiar but ABCH stands as an outlier. For a group with footprints in the region, one would expect that investors would cast votes in its favour, unless they are concerned that most of the regional offices are perennial loss leaders. Or is it perhaps because the market is not amused with the ongoing rebranding and retail rollout at a time when most banks are consolidating their operations?
Redstar is a victim of the cutthroat competition in retailing which has seen traditional top dogs of the sector-TM and OK being displaced by the SPAR franchises, Afrofood and Foodking. As for Celsys, only LonZim and possibly a few others know what is in that business. Equally, Tedco has always been incomprehensible amidst rumours that the company might have sold some of its retail units.  If it’s true then the question would be; was the market ever advised of these changes? As for Steelnet, what would you expect from a business with a five month to May revenue of $500 000?
The US dollar dispensation has taught us that with a stable currency investors are more careful with their stock picks. In fact, the record turnouts at corporate meetings currently being witnessed is a sign that investors no longer take their investments for granted. They now want to know how the companies, whose shares they hold, are performing. If a company is struggling, then stay away and if it is doing well, invest. Investors now realise that cutting losses on non-performing shares is how investing should be. Holding on to a losing trade is not a good strategy.

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