The Financial Gazette

Chengetai Zvobgo

The year in which many had high hopes for economic recovery is already turning into a nightmare especially for equity market investors who have to endure the pain of their wealth shrink on a daily basis.

The hardest hit has been the equities market. Never before, since dollarisation, has the market recorded such a big loss as that suffered in February. The benchmark industrial index lost 9,8 percent to close at 140,37 points having opened the month at 155,60 points.
The previous heaviest loss had been suffered in August when the market lost 7,7 percent and October, when it shed 5,7 percent. In February the market went for 10 consecutive trading sessions of trading in the red and the market recorded gains on only two days. As if that was not enough, the trend continued into March with the market recording its highest daily loss of 3,88 percent on Tuesday (02/03/10), which was followed by a loss of 3,03 percent yesterday.
At 130,37 points where the market closed yesterday, the industrial index has reached its lowest point since May 8 2009 and from the look of things, it will continue to go down.
A sectoral analysis shows that the losses have been across all sectors with only the construction sector recording positive gains mainly as a result of gains in PPC share price following the granting of fungibility status on its shares. The biggest loser was the tourism sector, down 29,8 percent followed by the manufacturing sector, down 26 percent and Properties down 22 percent. The banking sector which has to meet the capitalisation deadline of  March 31 2010 lost 21 percent driven by a 28 percent loss in Barclays and eight percent loss in CBZ.
February also recorded the lowest turnover since April 2009 with only US$29 million having changed hands at the market. Econet received the bulk of the funds, with 23 percent of the invested funds followed by Starafrica, receiving 18 percent and Delta which received 10 percent of the funds. Barclays and Innscor completed the top five traded counters in the month. The decline of the equities market has been attributed to the recently gazetted Indigenisation Regulations which took effect on Monday.
The regulations’ main objective is to achieve 51 percent indigenous shareholding in existing businesses with the owners given a five-year period to comply. The regulations also require that all existing businesses with a threshold of US$500 000 should within 45 days from March 1 2010, declare their shareholding status to the responsible Minister through a prescribed form. New businesses will also be required to comply within 60 days. Businesses that do not meet the 51 percent indigenisation requirement will be expected to submit a plan on how they intend to meet the requirements within 45 days from  March 1.
The resultant panic by investors turned the equities market into a sellers’ market as investors began off-loading their holdings in anticipation of a fall in share prices as companies rearrange their shareholding structure.
This new regulation could have scared away foreign investors as they digest the way forward in light of this development. Business coming from foreign investors averaged 40 percent in 2009 and contributed 29 percent in January but developments on the political front seem to be scaring away investors.
Furthermore, other reasons that have been highlighted as contributing to the decline include:
- Poor political outlook. Outstanding issues to the GPA still remain outstanding and there has been accusations and counter accusations on “this or that” issue within the inclusive government leaving investors wondering if anything had changed at all.
- The resurrection of the money market has further dampened activity on the equities market front and this has resulted in investors shifting their focus to the money market.
Currently, investors are enjoying rates as high as 30 percent per annum depending on tenure and size of investment.
- Continued liquidity crunch which is expected to further worsen this month as banks seek to meet the capital requirements as well as the quarterly tax payment date in March.
- General poor financial performance by a number of companies listed on the ZSE.  A number of companies have posted poor financial results sighting high administration and finance costs.
Companies are in serious need of funding but local funding has proved to be very expensive with some companies paying as high as three percent  per month.
 It is not a surprise that some have already announced at AGMs that they will post losses .
Like the economic prospects of the country in general, sustainability of the equities market, is a function of developments on the political front.  Politics will continue to play a big role in determining the direction of the market and more progress is still to be seen on that front.  Moreover, political developments should mirror a country that is ready to do business. In the meantime investors should brace themselves for further losses as long as the factors highlighted above continue to exist

Comments (2)

Show/Hide comments

Show/Hide comment form

Name

Comment

smaller | bigger

I have read and agree to the Terms of Usage.

Write the displayed characters

Add Comment