UNCERTAINTY surrounding the indigenisation policy and succession politics in Zanu PF is likely to promote “a wait and see” attitude among different potential investors, starving the economy of the much-needed capital injection, economists have said.
BY KUDZAI CHIMHANGWA
The Zimbabwe Stock Exchange (ZSE) — although undervalued by between 35% and 40% — remains an unavoidable investment vehicle regardless of unsustainable sovereign and political risk regimes.
In a recent report, local economic research group Econometer Global Capital said rating the ZSE as one of the most attractive bourses in the world might not necessarily translate to increased investment as some of the structural bottlenecks to its development are an anathema to increased international capital inflows.
“Most of the counters on the bourse are highly geared, which will continue to put a strain on the growth potential of such stocks,” said the group. “The heavily capitalised counters such as Econet, Seedco, Delta and PPC will remain the key drivers of the overall bourse in terms of both size and quality.”
Gearing refers to how encumbered a company is with regard to debt and a high gearing ratio is unsustainable for business.
“The bearish scenario leaves us with a market which will fall by a significant margin than it will recover, leaving the market size slightly above US$5,2 billion by the first quarter of 2014,” the report reads.
Zimbabwe’s capital market comprises active local and foreign institutional investors, with a significant proportion of liquidity being accounted for by foreign investors, pension funds and insurance firms, among others.
The group notes that the introduction of a Central Securities Depository platform would not shield the market from manipulation if ever it is to come to fruition.
FBC Securities last week noted that market capitalisation remained relatively flat at US$5,2 billion, adding that the economic footprint would have immense bearing on the performance of the local bourse.
Last year, there was an increasing trend of de-listings and suspensions on the local bourse with 10 counters being delisted while another five were suspended largely due to viability challenges.
A 2014 Budget Review produced by Afrasia Kingdom Zimbabwe notes that trading on the bourse was concentrated on only 10 out of the 64 active listed companies while about 20% of the listed companies were inactive.
LOCAL INVESTORS NOT LIQUID ENOUGH TO INVEST
“The ZSE is expected to be demutualised by end of the first quarter in 2014 and this should improve corporate governance on the bourse through separation of management, ownership and participation. Automation of trades is expected to be done in the second quarter of 2014,” the group said.
In his 2014 budget statement, Finance minister, Patrick Chinamasa noted that the post-election period was characterised by some bearish sentiments normally associated with adjustments.
A bear market is a protracted period in which investment prices fall, accompanied by widespread pessimism and usually occurs when the economy is in a recession and unemployment levels are high.
Consequently, foreign investors pulled out of the market and local investors could not capitalise on the relatively low prices due to a liquidity crunch.
Chinamasa acknowledged in his budget that the reduced net foreign purchases and increased foreigner investor sales translated into declining portfolio investment.
This contributed to the strong bearish sentiments on the stock market as local investors were not liquid enough to invest on the market.