HARARE — Zimbabwe equities dropped $6 billion in eight days as the market is in a drastic self-correction following a change of guard in the country’s political leadership, which saw Emmerson Mnangagwa installed as president on Friday.
Mnangagwa was sworn in on Friday to replace the long-serving Robert Mugabe who resigned on Tuesday following a military takeover a week earlier.
The stock market reaction is one of the primary indicators which speaks to investor sentiment. As such, the self-correction on the local bourse speaks to what investors believe about the future of Zimbabwe.
“Investors are expecting to see a positive change, that is the reason why the market is correcting itself from the bullrun which was largely driven by panic buying as investors seek to hedge themselves from the monetary developments that were taking place,” said an analyst.
The mainstream index lost 215 points (40%) in eight days to Friday to close at 318,65 points while the mining index eased 8% in the same period to close at 126,63 points.
However, in a year to date, both the mainstream index and the resource index gained 120,47% and 116,42% respectively.
The Zimbabwe Stock Exchange (ZSE) top 10 counters, heavyweights, were the most affected by the events as investors sell off their holdings in line with the new political developments.
Analysts say heavyweight companies were most affected because they are the most liquid stocks on the local bourse.
“Blue chips (ZSE top ten stocks) are the most affected because they are liquid, and dear to most investors who have a long-term view of the market,” an investment analyst said.
ZSE indices have been on an upward trajectory since the start of a stock market bull run, which began in October last year on currency risk, after investors lost confidence in the monetary system attributable to the introduction of bond notes.
As the US dollar increasingly became scarce, local investors became more sceptical of the return of the 2008 hyperinflation and this precipitated the scramble for equities as investors try to preserve their savings, thereby driving the stock market bull run which lasted for 12 months.
However, in the past eight days, the bull run took a u-turn as investor panic buying cooled down upon receiving fresh news that potentially mean that the fundamentals that were driving the bull run would come to an end.
Analysts, however, expect market turnover to remain depressed on few takers.
“Market turnover will, however, remain depressed as witnessed in the past days, due to few buyers as investors wait for the market correction to continue.
“Rational investors don’t buy when the market is going down, so we are likely to see higher turnover either after the self-correction or if it happens that the bull run resumes- maybe when the so called ‘good news’ turn to be bad,” an equities analyst said.
“We expect the market to continue with the correction in the short term on confidence, but any alterations to investor expectations will see a U-turn and potentially the resumption of the bull run which has characterised our local bourse in the past 12 months,” said an analyst.
All heavyweights, despite having gained significantly in the year to date, have lost ground in the previous eight days on the back of the events that took place between the military takeover and the inauguration of Mnangagwa, after Mugabe resigned on Tuesday as the president of Zimbabwe.
The major heavyweights, Delta and Econet, lost 58,88% and 52,52% in the last eight days to close at 132,23 cents and 88,68 cents respectively.
However, in a year to date, Delta and Econet have gained 49,41% and 195,6% respectively.
BAT, Innscor and National Foods dropped 7,5%, 33,81% and 10,96% in the past eight days to the inauguration of new president Mnangagwa, to close at 3,700 cents, 111,92 cents and 650 cents in that order.
Padenga and Seed Co also lost 32,79% and 54,32% in the past eight days to close at 54,43 cents and 147,08 cents respectively while Simbisa and Hippo valley shed 20,3% and 3,68% to settle 54 cents and 170 cents respectively, in the same period.
Old Mutual, which is trading at a premium relative to its primary listing on London Stock Exchange, has so far lost 68% in the past eight days to close at 457,55 cents. However, in a year to date Old Mutual has gained 31%.
OK Zimbabwe, which was among the top 10 stocks on the ZSE before the self-correction, was pulled out of the league after losing 46% in the same period to close at 14,05 cents.
Analysts also say foreign investor sentiment is expected to improve and the market will see the fading foreign investor appetite renewed.
“We are likely to see a renewed interest from foreign investors in the medium term when the dust settles down,” an analyst said.
“We need foreign inflows from portfolio investments, just like we need foreign direct investment in our country and I think if these current developments happen the way we envisage, we are likely to see positive results and that will be good for economic development.”
This will mark the end of capital flight, which has been happening recently.
Notwithstanding the ZSE self-correction which allowed some investors to take profit on some counters, disposing of penny stocks that joined the bull run on panic buying will be a mammoth task.
This include companies such as Medtech, GB belting and Zeco whose share prices has risen in the bull run era but with very poor fundamentals to even move a percentage point.
These also include struggling miners , Falcon and Hwange, whose share prices have so far, in a year to date, increased by 266,7% and 26,7% respectively.
Analysts said investors who have bought such shares will find it difficult to find willing buyers to buy them at a price higher than they were priced before the bull run, forcing the holders to take no profit at all.
“Those holding penny stocks will find it difficult to dispose of their shares and take advantage of the profit taking as the market pulls back, due to their lack of liquidity,” said an analyst.
However, analysts warned that it’s too early to tell the direction of the market since much time is needed to assess the new government led by Mnangagwa and its policies going forward — whether it will bring positive economic and political reforms.